Power is critical to economic growth, particularly for developing nations. Pending when we are able to tackle the bigger issues, PEBEC has made it a priority to remove bottlenecks to getting connected to the grid.
By Kayode Olagunju
The achievements of the Presidential Enabling Business Environment Council (PEBEC) with regards to improving the processes involved in setting up businesses in Nigeria are quite clear almost three years after being set up.
One of the focus areas for PEBEC is the process of getting connected to electricity – connecting new businesses to the national grid.
PEBEC’s efforts have resulted in businesses being able to apply online for connection to the grid and reduction in the time taken to be connected from an average of 176 days to 30 days from time of application.
In addition to this, the number of procedures for new connections to the distribution grid has been reduced to 5, and an e-system for application and approval for new connections to the grid by distribution companies has been created to make the processes easier.
However, these laudable achievements are sometimes dwarfed by the inadequacy of power supply and inefficiencies of operators; and those worst hit are business owners. One may therefore wonder, “How are businesses expected to cope with the high unreliability and high cost that comes with being connected to the national grid?”
Firstly, if you are wondering how being connected to the grid is a high-cost endeavour for businesses, let me explain. The existing industry tariff model is designed in such a way that commercial customers (businesses) subsidise the cost of power for residential customers. This creates a situation where businesses end up paying a high price for an inadequate and inefficient source of power supply especially where business premises are not metered and monthly power bills are estimated.
Based on the foregoing, it is clear that businesses need to look beyond the national grid to access the power required to run their operations. However, in considering other options such as Independent Power Plants (IPPs), some aspects of the existing arrangement can be borrowed from. For example, the situation described above where higher-consuming customers subsidise the cost for lower-consuming customers is not such a bad idea if implemented within a more efficient set-up.
Businesses must be located within close proximity to one another (in some sort of cluster) and the IPP. Next, some creativity needs to go into commercial negotiations and Power Purchase Agreement (PPA) pricing after large power consumers have taken the lead in negotiations and engagement in setting up PPAs where they bear the larger portion of the tariffs, while lower-consuming businesses pay a lower price.
This is not exactly a new model, as there are close examples that exist today. A good example is the Sura Independent Power Project at Simpson Street, Lagos Island where a cluster of about 700 small businesses now access constant electricity supply via a dedicated line from a nearby power plant.
Industry observers may accuse some of the current operators of being unwilling and not open to providing support in actualizing these kind of models but this is not necessarily correct.
What is required most times is extensive dialogue and engagement with all relevant stakeholders to ensure alignment of interests and buy-in.
In summary, as the government seeks to improve the ease of doing business, specifically in the area of getting electricity, a next step would be to consider such alternatives, and the cost of such alternatives can be optimized by employing existing pricing models where larger consumers subsidize the cost for lower consuming businesses.
Editorial Note: This article was originally published in The Spark Magazine. Find the magazine here to read other articles.
Kayode Olagunju is a business strategy consultant with over eight years of experience in business strategy analysis across several sectors and industries including the power sector. He is also a Consultant and Transformation Office at MTN