Investors are not charities

$90bn. That is apparently what it would cost to increase our electricity generating capacity to 40000mw by 2020. Not nearly enough electricity for a country our size but certainly more than the 4000MW capacity we are currently struggling to maintian. One thing is clear, the government does not have a $90bn to invest in electricity. Private sector investment is desperately needed but these private investors don’t seem to be interested. Why?
At this point we should take a detour to understand what really drives investment. Investment is driven not just by the desire to turn a profit but by the potential to make more profits than could be made elsewhere. This potential for profits is driven by the price of the commodity in question which in turn is driven by the demand and supply dynamics. Hence if there is too little supply of a product the price should be higher than the standard price ( the price at which the cost of producing that commodity is just covered) which should give investors the opportunity to make more than normal profits and should drive investors into production of that commodity hence increasing supply and reducing prices eventually. The key point is that price fluctuations below and above the “standard price” act as a kind of referee guiding investors and ensuring that supply always keeps up with demand. Of course this all assumes that the markets are working and there are enough participants etc etc. In the event that the markets do not work and the price needs to be set by a third-party this rule must still be followed if private investors are expected to continue their investments and ensure adequate supply.
Back to our need for electricity. We are at a point where demand has outrun supply to such an extent where PHCN is now seen as a ‘back up’ supplier. Not to be relied upon for anything remotely important. We have got to this point mostly because the ‘rule’ for pricing electricity has not been followed and the government has not made up the required investment to at least maintain the status quo. It cannot afford to. It has come up with all sorts of fancy agencies to try to convince private investors that it will follow the rule with the latest contraption led by NOI. Unfortunately the private sector knows the truth. The govt cannot be trusted to follow the rule. The govt will cave in every time to the pleas of the populace for electricity costing too much which in turn means losses for investors. That is all fine and good if the government can back up its actions with its own investments. But it can’t. The price of electricity in Nigeria now should be sky-high seeing as electricity is nowhere to be found but it is not. It is still lower than the prices in Ghana and South Africa, two countries that are in much better shape than we are. It may even be lower that the “standard price”. Investors are not in the business of throwing away money, they are not charities. If we want to make any progress in our struggle for stable electricity it is time we start to think of pricing solutions that do not involve a government agency somewhere setting prices.

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2 thoughts on “Investors are not charities

  1. I have a couple of different approaches.
    A. We might not have $90bn sitting in accounts anywhere all at once but with proper prioritization and planning we have more than enough to start the journey from 4,000 to 40,000MW.
    B. If we focus on performance targets rather than ultimate capacity, we’ll make meaningful progress that will be self sustaining. Rather than looking at the total of 40,000MW how about targeting a minimum of 6 (predictable) hours/day in 30% of all areas with populations exceeding 500,000 persons over a 4 year period? The predictability is important for planning and a useful measure of efficiency.
    C. Establish a direct connection between power that is PAID for via prepaid meters (not generated) and the salaries of EVERY staff involved in the power companies and industry. The reason I don’t have power this instant is because whether it is restored or not, the workers expect their salaries at the end of this month. If that crucial connection is established between MY service quality/quantity and their incomes, THEY will come knocking at my door to ENSURE I have power.

    1. Unfortunately workers don’t generate electricity with their bare hands. The extra capacity needs to be built and building costs money. Money that the government does not really have. Even if the government suddenly became saints and did their jobs properly they just just don’t have the money to do it alone.
      Creating a link between power purchases and the power plants directly is a good idea. Something which a free market does reasonably well. Government agencies don’t do it so well unfortunately

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