Comments in Response to the ‘Global Justice Now’ Submission to the International Development Committee Enquiry into DFID’s Programme in Nigeria

1              Overview

1.1              Adam Smith International make this additional submission to the International Development Select Committee enquiry into DFID’s programme in Nigeria in order to correct the factual errors contained in the submission by the organisation Global Justice Now (GJN).

1.2              This submission concerns itself solely with errors of fact. While Global Justice Now have never requested a meeting with the programme or attempted to engage with the technical team directly, we believe that any substantive enquiry into the state of the Nigerian power sector pre-reform will underscore the dire need for investment which only the private sector was able to provide. Rapidly improving generation, distribution and investment statistics post-reform all support this view.

1.3              Nigeria, Africa's most populous country, produces less grid electricity than the Republic of Ireland. South Africans consume 55 times more energy per head, and Americans 100 times more. Thus a key objective is to increase the amount of grid power available and get poor Nigerians connected to the grid. Huge amounts of investment – over $70 billion dollars - are required and this can only come from the private sector.

1.4              Only 50% of the population in Nigeria have access to electricity, and even that is very unreliable, such that one also needs an expensive diesel generator to maintain a constant supply of power. There is twice as much self-generation from diesel generators as there is generation of grid electricity. The other 50% of the population (and the vast bulk of the country’s poor) don’t have grid electricity. Poor people cannot afford to buy generators – they rely on kerosene lamps, torches, or candles, or sit in the dark, their children unable to do schoolwork. Moreover the cost of those kerosene lamps and candles is 10 times more than that of electricity and provides extremely poor light, as well as being unable to power appliances such as fridges.  A single light bulb is 100 times more powerful than a candle.

1.5              The whole Nigerian economy is uncompetitive because of the high costs of diesel self-generation. According to the Manufacturers Association of Nigeria, 40% of the production cost of manufacturers goes into the provision of electricity, compared to 5-10% in other similar economies. Addressing the electricity crisis will have a powerful effect on jobs growth and reducing the economy’s reliance on oil.

2              NIAF’s role in the Nigerian power sector

2.1              The Nigeria Infrastructure Advisory Facility 2 (NIAF) is a DFID programme implemented by Adam Smith International. It works across the following sectors: power, capital projects, roads and rail, northern economic growth, climate change and effective cities. In each of these areas it offers technical advice to both Federal Government of Nigeria (FGN) and state government ministries. The programme is demand-led meaning that it responds to requests for support from Nigerian partners.

2.2              Within the power component, support to privatisation process was a relatively small component of the package of assistance provided. The programme also works across: reform to domestic gas sector, transmission network upgrade, improved regulatory capacity, electricity market stability, electricity delivery and network stability as well as renewable generation capacity.

3              Changes in the Nigerian electricity price tariff

3.1              Responding to the concern around electricity price changes:

• New tariffs are an essential component for securing long-term investment in the sector. This investment is an essential pre-requisite for infrastructure upgrade and will contribute to improved energy access as distribution companies expand networks.

• The poorest consumers continue to be projected via the Lifeline R1 tariff bracket offering cross-subsidised electricity for low income users.
• Introduction of this tariff means that prices have fallen for the poorest consumers. It ensures that poor people have access to a basic amount of electricity for only 2,400 Naira a year, enough to light their homes and run one or two appliances.  2,400 Naira, about £8.40, is enough to buy some 80 of the smallest stick candles available. That’s a lot less than the equivalent light output of one light bulb for a day.
• Overall tariffs must be cost-reflective (i.e. cover the cost of feedstock, capital & operational expenditure) to sustain a viable power market.
• Residential consumers classes are categorised and monitored by the electricity regulator to ensure consumer affordability for R2-R4.
• The most recent tariff review saw the removal of “fixed charges” for energy, so consumers only pay for electricity they use. Again this helps the poorest consumers.
• The cost of electricity delivered via the grid, continues to be a much cheaper alternative than diesel/petrol “self-generation” (or candles). Average nationwide tariff is 34.21 Naira/KwH compared to approx. 60-70 Naira/KwH for diesl self-generation.

4              Approach to socially inclusive programming

4.1              The NIAF programme has a major poverty, gender and social exclusion component which extends well beyond the logical framework agreed with DFID on which GJN have based their submission. As GJN themselves note, energy access cannot be divorced from the generation challenge on which NIAF also concentrates – functional access to power requires that there is sufficient electricity generated to meet the rise in consumption requirements.

4.2              Headline results within the poverty, gender and social exclusion component of this programme include:

• Ensuring the R1 lifeline tariff for low income users consuming <50kwh of electricity each month benefit from a subsidised flat fee of 4 Naira / KwH.
• Equipping the electricity regulator with the tools and training to assess the experience and requirements of low-income electricity consumers, following a pilot survey of 350 low-income households and 150 micro-enterprises in the Ibadan region.
• Developing the structure of a nationwide electricity customer enumeration programme for implementation by all 11 distribution companies in 2016, ensuring process for data capture is G&SI compliant.
• Looking forward in 2016 we are to support NERC on a scoping study for social oriented policy options available for sector regulator for medium term implementation.

4.3              NIAF is also actively contributing to the DFID lesson learning knowledge base on the impact of power technical assistance on growth. The programme is exploring the economic impact and specifically the jobs impact on the manufacturing sector which has benefited from increasing power supply and stability.

4.4              Given its prominent successes, NIAF is one of the most frequently reviewed programmes in DFID Nigeria’s portfolio. In addition to the standard Annual Review, the programme also undergoes an additional twice-yearly assessment by the Technical Review Panel, a group of independent sector experts who advise DFID and the programme on strategy in each sector.

4.5               The GJN submission has focused exclusively on the NIAF power sector programming objectives, without taking into account DfID’s diversified portfolio approach to delivering its economic growth agenda in Nigeria. For example, the Solar Nigeria Programme is instrumental in addressing the energy access challenge with both social and market based components aimed at stimulating uptake of small-scale solar home solutions in off-grid locations. NIAF was successful in acting as incubator for this programme.

5              Employment in the power sector

5.1              NIAF’s involvement in the reform process ensured that successor company restructuring was preceded by a formal a skills-gap analyses and “right-sizing” exercise whilst under Govt. ownership. As an example of the misallocation of jobs which occurred under the former state monopoly, not a single engineer was recruited by National Electric Power Authority in the 16 years running up to 2010. These skills-gap exercises helped to prevent against unnecessary down-sizing post-privatisation, as management benefited from an objective assessment of needs.

5.2              Post-privatisation successor companies have recruited significantly to meet emerging skills-gaps. Accompanying evidence demonstrates recruitment drives amongst successor companies.[1]

6              NIAF’s reporting

6.1              Through NIAF support, the sector has been able to address the immense challenge on reporting inconsistency. The electricity regulator now publishes a weekly sector performance metrics via its website (http://www.nercng.org/). Supporting Nigeria’s power sector agencies to improve their ability to report accurately and transparently remains an important aspect of NIAF’s reform programme.

Adam Smith International,

February 2016