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Corruption in power sector responsible for dearth of SMEs -Report

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By Emmanuel Elebeke

A research conducted by the Centre for Democracy and Development (CDD) and Anti-Corruption Evidence, SOAS Consortium, University of London says Corruption in the Nigerian power sector is responsible for the dearth of Small and Medium Enterprises, SMEs in the country.

The report on the Nigerian power sector was based on the SOAS University of London Anti-Corruption Evidence, ACE framework  identified the rents being allocated in the sector and their distortion, the beneficiaries associated with the rents and the configuration or organisational power in the sector.

The report titled: “Developmental Anti-corruption: Addressing the Electricity Shortfall for Nigeria’s Productive Sector by Leveraging Embedded Power Generation and SME Cluster’’ , was presented by Ms Pallavi Roy of SOAS University in Abuja.

According to Roy, SMEs accounts for 96 per cent of businesses in Nigeria and are the most vulnerable to losses from lack of power supply.

Although MSMEs contributed to almost 97 per cent of the agriculture sector’s input to GDP and 55.53 per cent for manufacturing, she noted that majority of them received between just one and five hours a day of electricity.

Roy identified access to power as one of the three key constraints to growth identified by MSMEs.

The study urged that anti-corruption-related solutions for Nigeria’s power sector  should follow  a two-track approach; one for the short to medium term and  one  for the long term, insisting that  significant restructuring is needed  in order to turn things around in the sector.

“In spite of the privitisation of the power sector launched in 2010, a decade on the desired outcome have still not materialised and electricity on national grid has stayed on 4,500 megawatts,  well below  the 8,400 Mw projected for 2018. .

“One reason for this is the technical inefficiency of the grid, beginning with inefficient gas supplies, inability of transmission system to deploy adequate electricity ,and poor collection of user tariffs by distribution companies .

“A combination of interdependent issues, legacy corruption, problematic contract design, transmission inefficiency, technical bankruptcy of Discos, low collections, cascading losses back up the value chain.

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“In a sector where demand is high and supply is severely constrained, there are strong perverse incentives for corrupt behaviours.

According to the report, 100 per cent of respondents SMEs in Nnewi, Onitsha and Aba used diesel generators as backup and this was echoed by various other contacted in the study.

 

The report reveals that amany SMEs faced high costs and had been forced into corruption an example of forced violations since compliance would affect their bottomline and this was one of the reasons growth in the sector has been affected.

She said that as a result of inefficiencies in the sector had resulted to a growing revenue shortfall and the sector subjected to extensive government bailouts.

She said that the number of medium-sized enterprises decreased significantly from  4,670  in 2013 to 1,793 in 2017 61 per cent drop and power constraints were listed as one of the leading constraints along with water supply.

“While having to use diesel is expensive and these cost inefficiencies need to be dealt with the ‘costs’ of corruption are high too

“For instance, buying diesel on the black market as fuel for captive generators is a huge corruption externality, as is ‘tapping’ into high voltage lines. The research challenge was to identify an alignment of incentives among SME entrepreneurs in a way such that supply was achieved at a low ‘cost’ of corruption.

‘‘The incentive alignment solution was that there was a market for power but SME’s are paying high costs for it including the costs of corruption.

‘‘The research suggested anti-corruption-related solutions, one for the short term and another for the long term, adding that the latter strategy included capital investment and debt restructuring.

‘‘The medium term strategy should focuse on the most vulnerable segment of Nigeria’s economy namely, small and medium –sizes enterprises, while the short-term solution should focused on easing power supply constraints for the sector,’’ she said.

The research further recommended that a disaggregated, embedded power-generating solution using natural gas as feedstock for existing SME clusters.

Roy said that SME should be incentivized by the government to support the recommended strategy adding that the solutions should developed with local political –economy considerations in mind.

She said that promoting an SME friendly policy would also show the government’s commitment towards delivering on the aims of the economic- recovery growth plan laid out in 2017.

In his remarks, Senior Fellow, CDD, Prof. Jibrin Ibrahim, identified contracts and procurement as key sources of corruption in the Nigerian power sector, saying that it was for this reason that the Bureau of Public Procurement was established to curb corruption in the system.

According to him, the research study aimed at understanding the nature of corruption in the power sector because the reality on ground 10 years after privatization showed that less was being achieved than expected.

Vanguard

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