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The Need For Full Privatization of Electricity Sector in Nigeria

By Livy-Elcon Emereonye

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Variety is the spice of life, and it is the only way to checkmate the dangers of monopoly in business. When and where there is an alternative, healthy competition is in place which translates to better services with adequate provision of value for money.

The reason for the present system of electricity generation, distribution and supply in Nigeria needs to be reviewed. This is because it is not serving the overall interest of the end users. A situation where people pay for darkness not light is fraudulent, and it becomes worrisome when consumers are threatened and intimidated into paying for services not rendered without option of redress even as the customer care service is more like nonexistent as most complaints to them are never addressed.

Another danger of the current inefficient and poor power supply associated with the monopoly and partial privatization of the electricity sector is that apart from militating against productivity and industrialization, it remains a big conduit for bold criminality. It is a pity that majority of end users are often being intimidated and defrauded from amongst others estimated billing system that runs into billions of Naira every month as against provision of prepaid meters that ought to be freely installed but are today being sold at exorbitant prices and at the mercy of the Power Holding Company!

Again, were a transformer or capable to spoil, it would take ages to repair or replace oftentimes through individual and communal contributions yet bills run uninterrupted for services not rendered. Another dangerous trend is the recent attitude of the staff and management to put some areas into deliberate darkness by cutting off supply to such areas under the guise that they owe or some transformer parts were stolen!

Where things work and people conduct their affairs with a good sense of civility and accountability, monopoly, as an economic situation where only a single seller or producer supplies a commodity or a service, has some advantages. However, for such a monopoly to be effective there should be no practical substitutes for the product or service sold, and no serious threat of the entry of a competitor into the market. This will enable the seller to control the price.

One or more of the following elements are of great importance in establishing a monopoly in a particular industry: (1) control of a major resource necessary to produce a product; (2) technological capabilities that allow a single firm to produce at reasonable prices all the output of a particular commodity or service, a situation sometimes described as a “natural” monopoly; (3) exclusive control over a patent on a product or on the processes used to produce the product; and (4) a government franchise that awards a company the sole right to produce a commodity or service in a given area. (Microsoft ® Encarta ® 2009. © 1993-2008 Microsoft Corporation. )

Where things work, monopoly has many advantages especially in Research and Development where it can make supernormal profit that can in turn be used to fund high-cost capital investment spending; a domestic firm may have monopoly power in the domestic country but face effective competition in global markets and this may be necessary for a firm to have a domestic monopoly in order to be competitive internationally.

Tejvan Pettinger argued that monopolies can be successful firms. “A firm may become a monopoly through being efficient and dynamic. A monopoly is thus a sign of success, not inefficiency. For example – Google has gained monopoly power through being regarded as the best firm for search engines. Apple has a degree of monopoly power through successful innovation and being regarded as the best producer of digital goods.”

A very important factor in monopoly is regulation for checks and balances. It is possible for a firm to have a monopoly situation but the government sets up a regulator to prevent the excesses of monopoly power. Depending on the quality of regulation, the regulator can limit price increases and ensure standards of service are met. This way, the monopoly firm can benefit from economies of scale while the consumer is protected from monopoly prices.

Monopoly helps to prevent or avoid the duplication of services. In some areas, the most efficient number of firms is one. Ideally, electricity distribution should be monopolistic. To distribute electricity to every home in a country, it is most efficient to have a functional monopoly provider that will have significant economies of scale in having a comprehensive network to avoid having a situation where two electricity cables run up the same street. But this is not the case in Nigeria today where monopolistic electricity distribution gives continuous problems of higher prices, poor services and little or no incentive efficiency. Thus, there is the urgent need for alternative power supply through Creative Destruction and full privatization.

Full privatization of the Electricity sector in Nigeria will encourage foreign direct investment into the sector and allow market liberalization with increasing positive competition. This will be successfully achieved through thorough sector restructuring, a transparent and effective regulatory framework and appropriate market conditions for investors to enter the market.

Whatever constraint that supports monopolistic electricity supply should be embraced for total overhaul. For instance, the laws that establish the current system have to be reviewed with every bureaucratic red tape relaxed or removed to give room for healthy competition. It is high time the government reviewed the existing laws in this sector and allows more industry players to come in for better service delivery.

Business wise, competent and willing investors should come in and explore the endless opportunities in this sector. The Electricity sector, which is capital intensive, is a goldmine waiting to be explored with endless opportunities and timely return on investment (ROI). To this effect, every identified constraint against full liberalization of the electricity sector, if holistically embraced, can become a factor for creativity, innovation and invention for productivity and profitability. Taking the issue of putting multiple cables as an example, the competing companies may choose to put their separate cables opposite each other on the different sides of the road or alternatively one company can use underground cables while the other will use electric poles to suspend their cables! With this, people can choose the company to patronize bearing in mind that cost effectiveness is not about cheapness. This way, there will be steady power supply at cost effective prices as any inefficient company will lose its clients and customers to the more competent and customer friendly one.

Using the Telecommunications sector as example, privatization of the Electricity sector will make uninterrupted electricity available, accessible and affordable for domestic and industrial uses – and this will in turn create more wealth, employment opportunities with millions of direct and indirect jobs that will make life more meaningful. Therefore, the government should, without further delay, fully privatize the electricity sector so that there will be light and uninterrupted power supply.

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