The second coming of electicity subsidy withdrawal

Yemi Osinbajo stirred the hornet’s nest in his recent speech at a function in Abuja when he re-ignited the thorny issue of electricity subsidy. The vice president warned that from 2022, consumers would be paying market price for electricity supply.
Osinbajo’s message was loud and clear. The federal government is poised to end subsidy on electricity by 2022. Up to the first quarter of 2021, government subsidy on electricity was N29 per kilowatt hour.
About three months ago the subsidy was reduced to N13 per kilowatt hour as the power distribution companies (DisCos) wrenched up their tariff almost by 100 per cent. Average electricity tariff in Nigeria at the moment hovers around N45 per kilowatt hour.

The implication of the vice president’s warning is that from 2022, electricity consumers would probably be paying anything from N55 per kilowatt hour. That would be the second coming of electricity subsidy withdrawal.
Many argue that power tariff hike should only be implemented after the operators are ready to ensure regular power supply. The operators however believe that they need appropriate pricing of electricity to raise the funds to rehabilitate decaying power infrastructure necessary for regular power supply.
With the DisCos, the weakest link in the power supply chain, seemingly in insoluble financial insolvency, the federal government believes that power tariff hike must precede regular power supply.
Ironically the federal government is the final arbiter in the tug of war over electricity tariff hike. Right now, two key factors have made it practically impossible for government sustain electricity subsidy.

The summary of government financial situation is that Nigeria is bankrupt. Government missed the revenue target for the first half of 2021 by a whooping N1.48 trillion just as debt service consumed 98 per cent of its miserable revenue.
Government can no longer raise the N360 billion needed to fund electricity subsidy annually. That is the logic behind Osinbajo’s grim message.
Ironically, the federal government lacks the moral right to deliver that message to Nigerian people because even as government is practically living on borrowed funds, its officials have defiantly sustained a lewd opulence that no government official in rich developed economies dare to display.
Electricity consumers believe that if government is too bankrupt to fund power subsidy, simple economic logic suggests that the belt-tightening should begin at home with government officials abandoning their fleet of intimidating limousines for sub-compacts. Unfortunately, the body language of government suggests that despite the financial insolvency in the land, belt-tightening should actually start with the impoverished populace while government officials maintain their weird opulence. That is why the electricity tariff hike is a hard sell for the federal government.

Perhaps the primary reason for the planned withdrawal of electricity subsidy is the fear of the International Monetary Fund (IMF).
One of the conditions for the $3.4 billion IMF loan used to balance the 2020 budget was that Nigeria must withdraw consumption subsidies on petrol and electricity.
More than one year after the IMF loan was consummated, Nigeria is yet to obey the IMF directive on petrol and electricity subsidies because of intrinsic corruption and a skewed income distribution system that turned Nigeria to the world headquarters of poverty.
The World Bank’s believes that Nigeria pushed 10 million more people below poverty line in 2020 as inflation surges. The insurrection in the north-east by Islamic lunatics which has festered for 11 years now has driven peasant farmers who produce 70 per cent of Nigeria’s food items, out of their farms, thus worsening the nation’s food security crisis.
Fulani herdsmen in other parts of the country escalate the food security crisis by feeding their cattle on crops cultivated by peasant farmers. When the farmers protest the destruction of their crops, the herdsmen march into the villages at night, kill, rape, maim and raze down the farmers’ houses.

Those two factors and Nigeria’s primitive method of farming have combined to set the country on the path to self-inflicted famine as scarcity of food items drive prices beyond the reach of the 122 million people eking a living below poverty line.
In the last one year since the IMF handed down its directive on petrol and electricity subsidy, the federal government has been exploring the system to determine which of the two evils (the impoverished Nigerian people and the IMF) would be more dangerous to dare.
Government is worried that with the level of inflation and poverty in the land, power tariff hike could trigger unprecedented street riots that could make the mayhem of October 2020 pale into insignificance.
Government might have been emboldened by recent inflation figures from the National Bureau of Statistics (NBS) in its decision to finally withdraw electricity subsidy. The NBS figures show headline inflation gliding down from 18.7 in April to 17.7 in June. Food inflation dropped from 23.5 to 21 per cent in the period under review.

That in the view of government officials, suggest that the withdrawal of electricity subsidy might not push inflation out of control.
Ironically there are fears among economy watchers that the NBS inflation figures may not be a true reflection of the situation in the market. Prices of food and other items rise on weekly basis in apparent defiance of the NBS projections.
Besides, the NBS food inflation figure is at variance with the grim news from Britain’s Institute of Development which ranks Nigeria as the world’s second poorest in food affordability.
The report says that for an average Nigerian worker to eat to sustain the 2, 100 calories prescribed by the World Health Organisation (WHO), he has to spend 101 per cent of his average monthly pay. War-torn Syria ranks first with 177 per cent of average monthly pay needed to sustain the required level of calories.
With the level of food inflation painted by the British think tank, the danger is that government might be goaded into catastrophic miscalculations on the timing of electricity subsidy withdrawal.
Cheap electricity and petrol amounts to subsidizing consumption which does not encourage production and economic growth.
Ironically the cheap electricity enjoyed in Nigeria for decades is primarily responsible for the eternal darkness that has crippled the economy, rendered 20 million people jobless and pushed 122 million people below poverty line.

Consumers have to choose between the epileptic supply of cheap electricity and the higher cost of regular power supply. It is obvious that everyone would opt for appropriate pricing and regular power supply.
However, government has the responsibility of timing the tariff hike to reduce its impact on inflation. The tariff hike should be implemented when inflation drops to single digit.