Electricity tariff increase: Give govt the benefit of doubt

Editorial 

Despite protests, agitations and dissatisfaction expressed by electricity consumers across the country, the Nigerian Electricity Regulatory Commission (NERC) eventually fell for pressure from investors in the Nigerian Electricity Supply Industry (NESI)

to increase electricity tariff based on new Multi-Year Tariff Order (MYTO 2015), on February 1, 2016 in the absence of steady power supply and at a time of economic comatose. Consequently, consumers, organised labour, manufacturers association of Nigeria (MAN) and affected stakeholders have expressed dissatisfaction.

Minister of Power, Works and Housing Mr. Babatunde Fashola, told Nigerians recently to expect increase in electricity tariff stating it was expedient for improved generation and supply of power. He also indicated the Ministry of Petroleum has signified interest to build certain critical pipelines to transport gas to the power plants that will add another 2,000 mega watts to the national grid within 12-15 months.

Fashola said “By far the most complex challenge is the problem of tariff. It is complex because it is more in the hands of citizens than in the hands of Government.

“The role of Government is to set the tariff and in doing so, Government has committed to what is called a Multi-Year Tariff Order. This was done in order to attract investors to the market; otherwise we will not have achieved the privatization if the price of the product is not attractive to the investors.

“What Government did was to spread it over a number of years so that the impact is not felt at once but over a periodic incremental process. I know that it has been a contentious matter, but I make this fervent appeal to consumers to give us the benefit of doubt, to forbear and accept it. As regards transmission network, the Minister noted that the amount of power that is available today is slightly larger than the capacity which the transmission network can support. He said “We have identified a total of 142 (One Hundred and forty-two) projects of which  45 are at 50 percent level of completion  and about 22 (twenty-two) can be completed within a year. “The budget estimates are known and we intend to aggressively pursue completion to increase the carrying capacity from the generating companies, GENCOs to the distribution companies, DISCOs.

Consequently, while employers under the aegis of the Nigeria Employers’ Consultative Association (NECA) demanded an improved electricity supply, the Nigeria Labour Congress (NLC) and MAN have rejected the new tariffs.

Director General of NECA, Olusegun Oshinowo, said employers of labour were spending huge resources to power their operations, which contribute to the overall cost of production, adding “Well, an increase of the tariffs is not something that employers would moan about really especially if one looks at how much diesel is sold at. For us, the issue is not primarily about increment to tariffs but about the availability of electricity. If power is available, employers would spend less on their operations, which would ultimately lead to a reduction in the prices of goods and services. So, if electricity is available, employers would do much more, employ more workers and produce at cheaper rate that would benefit the economy in the long term.”

NLC however berated the decision to increase electricity tariffs without ensuring availability of meters to promote social justice where consumers would pay for exactly the amount of electricity they consume. NLC President, Ayuba Wabba, said relying on estimated bills rips consumers off. “Congress considers as illegal, unfair, unjustifiable and a further exploitation of the already exploited Nigerians, the 45 per cent increase in electricity.”

Also the National Association of Electricity Consumers of Nigeria (NAECN) condemned the increase explaining that under the new regime, residential consumers with single phase meter who are presently paying N15 per kilowatt will start paying N24, while residential consumers with three phase meter will pay N25 per kilowatt.

Issues were raised by the various stakeholders. A major issue is that majority of customers (up to 60%) have no meter. Even at that, metering alone does not solve the problems associated with collection losses. Discos will have to address electricity theft, revenue collection inefficiencies, lack of accurate customer database, cash theft by staff and so on. One of the most difficult challenges for experts is the economic regulation of power systems in the face of technical challenges. Customers look at electricity tariffs from the eye of availability of supply and so it is difficult to accept any increase in tariffs without enjoying stable or even appreciable improvement in supply beforehand.

With the present state of electricity generation in the country, Gencos and Discos cannot perform any miracles at all. The investment to be made is huge and will take many years before the overall impact can be felt. They cannot fix the technical losses in the wires and transformers from the monthly bills collected from unimpressed consumers who are likely to display a recalcitrant attitude towards the payment of their bills. At the moment, Discos have huge debts to finance as many of the technical partners have left for lack of liquidity in the sector even after two years. Nigeria needs to get it right this time having wasted so much resources on the power sector reform of which time is the most invaluable The entire electricity chain faces daunting operational and financial challenges that the defunct NEPA and PHCN faced and so nothing new will happen except a different approach is deployed. Some of these challenges include but not limited to insufficient supply of energy, poor network infrastructure, lack of maintenance, largely untrained man-power, poor customer data, external funding constraints arising from poor credit histories etc.

No matter how bad the increase might seem to Nigerians, there are some strengths and positivities inherent in the new tariff if well managed and if the new government will live up to its promise. For every regulated electricity business, the price of electricity as a commodity needs to be cost-reflective. This among other requirements means that price must cover the cost of efficient delivery of electricity through the value chain. Before now, the price or electricity tariff in Nigeria is one of the lowest in the world and one of the lowest in West Africa.

Though the increased tariffs came at a time when the regulator has been involved in the scandal of over bloated and outlandish severance payments to its commissioners which is currently under investigation by the National Assembly; when most consumers have no meters to ensure that they pay for what they have used, and the fact that the benefits of privatisation since November 2013 is yet to be felt in terms of availability of supply, this increase in tariff came still and is expected to yield improved generation and distribution such that consumers get value for their money. Nigerians should give government the benefit of doubt this time especially with the power ministry under the supervision of Babatunde Fashola, knowing his excellent performance as Governor of Lagos state.

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