Business Made Easy

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BUILDING EASY
Powering Nigeria’s
Businesses
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
“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.”
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.
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