Will lobbies and protests pull the plug on Nigeria's reforms?
One month ago Goodluck Jonathan, Nigeria's president, removed fuel subsidies. It caused petrol and transport prices to more than double, and didn't go down well: strikes and protests paralysed the country for a week. Mr Jonathan was forced to back down, and prices were cut by a third.
But today we learn that Nigeria, in the coming weeks, plans to increase electricity rates by up to 88%. Are the streets going to flare up again?
Nigeria's power reforms, no doubt, are sorely needed. Very weak national cover and frequent blackouts mean that two-thirds of all power produced is created by privately owned petrol and diesel generators. They are noisy, dirty, very costly for families and businesses (an estimated $13 billion a year), and unappealing to foreign investors. The toll on the economy is huge: GDP growth, at a projected 6.8% for 2012, is far below potential.
The government's answer to this is privatisation. As part of a comprehensive plan to revamp the sector, it intends to sell stakes in 18 public generation, distribution and transmission companies. Hopes are that the new cash, and increased competition, will boost capacity: the ministry targets a 18000MW output by 2016 (a 350% increase on 2011). But investors, naturally, will only play ball if they can make money. Which is why electricity prices have to rise first (Nigeria currently sells power below cost).
Then comes the thorny question: will Nigerians accept to pay more? Well, there is a chance many will not notice. 60% of Nigeria's 160m population have no access to the grid, and grid-power is only a few hours a day, so a majority will see no difference in their monthly expenses. But more to the point is whether lobbies and unions will manage to stage another round of crippling strikes. Odds are in their favour: the 'generator mafia' and big business are well connected to the administration; and after decades of corruption and poor governance popular mistrust is rife.
So what should the government do? First, take a look at what went wrong the first time. The fuel subsidy removal was ill timed: it came just as a wave of attacks by Boko Haram, an Islamist group, was fanning sectarian tensions in the country. It was also ill prepared and hastily enforced. Instead of phasing in measures to soften the blow to the poor - disproportionately affected by the price increases - Mr Jonathan just promised the money saved would be spent wisely. Unsurprisingly, few people took him at his words.
So this time a special subsidy should cushion the rise for those who most need it. But the chosen mechanism should be different from that of the fuel one: instead of creating a universal subsidy (which would primarily benefit the biggest users), tiered rates should be introduced, whereby basic use will be cross-subsidized by the wealthiest consumers and charged at a lower price. The implementation of a universal metering system, allowing for more transparency, would make this work even better.
But in complement to this, there's a set of other, quicker fixes the government could adopt. Instead of randomly shutting down the electricity grid when demand can't be met, for example, it should plan and implement scheduled outages: they are far easier to accommodate when trying to run a business. It should also educate the people to limit any power wastage, by introducing energy efficient lighting, fridge and freezers, or encourage them to switch off big-ticket devices, like water heaters or air conditioning, when they're not in use.
In the longer run, finally, it should also create the market structures and products able to address the needs of rural people. Few of them will be connected to the grid in the near future. This includes designing smart wiring systems that can run solar-powered lights and fans separately from big consumption items, sponsoring the use of batteries and inverters, removing import duties on renewable technologies, and ensuring that distribution and maintenance agents are sufficiently trained and funded.
The biggest obstacles to power reform, however, will not be technological: those who stand to lose most will try hard to pressure the power regulator and inflame the streets. But this time the government should stand firm. Another failure woud not leave Nigeria's poor in the dark - and pull the plug on its long awaited economic take-off.