…Power remains epileptic despite previous tariff review
By Michael Eboh
In December 2015, when the Nigerian Electricity Regulatory Commission, NERC, with the backing of the Federal Government, carried out the last upward electricity tariff review, it told Nigerians that the hike in the tariffs would bring about stable electricity supply and would finally resolve the problems of the country’s power sector.
Specifically, then Minister of Power, Works and Housing, Mr. Babatunde Fashola, urged Nigerians to comply with the upward review and ensure that they pay their bills, noting that the Nigerian electricity sector would record considering improvement thereafter. Also, the Chairman/Chief Executive Officer of the NERC, at that time, Dr. Sam Amadi, declared that tariff increase would help achieve a smooth meter roll-out, as almost every Nigerian would be metered.
He further stated that the increased tariffs would ensure more hours of power supply, and reset the electricity market, making the sector more efficient, bring about increased quantities and create a market whereby customers would be satisfied with what they are paying for.
Previous tariff review
Up until 2016, the NERC had also at various times introduced Meter Maintenance Fee and Fixed Electricity Charges ranging from between N750 to N800 per customer, all with the claim that the charges were critical for the growth of the industry. Prior to the 2015 electricity tariff review, the NERC had undertaken a review of the tariffs in 2012, which increased the tariff to N22.62 per kilowatt hour of electricity. The tariff was also reviewed upward to N23.75 per kilowatt hour in 2014, N26.50 in 2015, before the latest review, January 2020, which sought to hike tariffs to as high as N49.80 per kilowatt hour of electricity.
Paying heavily for darkness
Fast forward to January 2020, a little over four years after the last hike in electricity tariffs, reports from across the country showed that power supply has worsened from what it was in 2015 and the rot had eaten deeper into the sector. Majority of electricity consumers are still at war with the various electricity distribution companies, DISCOs, for meters, which the DISCOs had deliberately made a scarce commodity; while the inefficiencies in the electricity sector had hit an all time high.
Data obtained from the Ministry of Power revealed that by December 2015, electricity supply stood at an average of 5,000 megawatts daily, today however, Nigeria is battling with 3,500 megawatts, and most households hardly enjoy up to eight hours of electricity daily. Inefficiency is still recorded across all the value chain of the electricity sector, and Nigerians appear to be paying heavily for darkness.
No major investments had been made in the electricity sector by the electricity generation companies, GENCO, and the DISCOs, while despite privatization of the sector, the Federal Government is still making heavy investments in the sector.
DISCOs holding back the sector
Stakeholders interviewed by Sunday Vanguard were unanimous in their views that the biggest problem with the Nigerian power industry is the electricity distribution companies, who unfortunately, are the ones constantly asking for an increase in electricity tariffs.
Specifically, Executive Secretary of Centre for Social Justice, Dr. Eze Onyekpere, affirmed that the country needs a cost-reflective tariff, noting, however, that the hike in electricity tariffs would not solve the problems of the sector. From their performance since privatization, Onyekpere accused the DISCOs of lacking the technical, managerial and financial capacity to turnaround and add value to the investments that they met on ground, noting that the concerns of the distributions companies was only centred on collecting money, which he said they were unable to manage properly.
He advised the Federal Government to revoke the licences of the DISCOs, or concession the companies to investors with the financial and technical capacity to turnaround the sub-sector. He said, “Inasmuch as we need a cost-reflective tariff, I do not believe the hike in electricity is going to solve the problems of the industry because we are not discussing investments in new generating capacity, neither are we discussing about improving the capacity of DISCOs to distribute electricity. We are also not talking about the capacity of the transmission sub-sector to wheel electricity to where it is needed.
“I do not think the hike in tariff is the answer to the challenges facing the sector. It is much more fundamental, because some of them need to be pulled out of the programme, in terms of being asked to go, since they do not have the managerial and technical capacity. “The DISCOs again should again be put up for investors, who would come in and put money. Otherwise, if you do not want to take them out, you ask them to hold on a little bit, so that investors can come in and work with them.
It is either they do not have the money, or they have it and are mismanaging it. They cannot give ordinary meters; they tell you stories.
Even when you pay for meters, it takes them six months to give it to you. “They are clearly the most degenerate set of managers I have ever witnessed in any sector. Yes, we need a cost-reflective tariff, but that would not solve the problems. We would keep going the way we are going, if we do not do any other thing right.” Also speaking, spokesperson for the Young Progressives Party, YPP, Comrade Martins Egbeola, describes the hike in tariff as insensitivity on the path of government.
He said, “For the benefit of Nigerians who may have forgotten, this same government was responsible for increasing electricity tariff about three times in the last four years and this latest increase only goes to show the insensitivity of a government that only pays lips service about making life better for Nigerians.” For Mr. Bode Adefolu, an electrical/renewable energy expert, “The current DISCOs harboring power, yet receiving incentives from the Federal Government, with scarcity of prepaid meters to cconsumers, are now proposing power tariff hike across the land, while consumers bears the brunt without mercy. “Consumers continue to be at the receiving end, as no incentive/bonus available to pay compensates the hike in tariff, hence, more pains created for the citizenry.
Sadly, who pays for power that is not delivered to the customers, I mean, estimated consumers or will Government pay for this as well.
“Isn’t it time for Nigeria to make power readily available to her citizens through energy mix and stop paying lips service this year 2020 so that the whole world will not leave us behind.”
No understanding of electric market issues
However, in his own submission, energy expert, and Executive Vice President, International Institute for Petroleum, Energy, Law and Policy, IIPELP, Centre for Energy Economics, Abuja, Professor Wumi Iledare, disclosed that the problems confronting the power sector are more of the lack of full understanding of the fundamentals of the electric market structure, conduct and performance metrics.
He said, “Interestingly and rightly so, the symptoms of that misunderstanding is manifested mostly by the tariff issues that are currently in display. It is therefore, not if it is right or wrong or whether higher tariff is justified or not. What is as stake is whether the process of increasing or decreasing the tariff follows the rule of law without any evidence of regulatory capture. “The responsibility to approve or disapprove tariff rare is vested on NERC and as long as the due process is followed, so be it. The caveat, however, is following the due process as to the Act.
For example, do the Discos asking for increase in tariff merit their request based on efficiency and effectiveness criteria? “Have they made investment over that last reviewed period to expand capacity and improved deliverability? Is there any improvement in energy access and affordability? Electricity is not a public good. You need adequate tariff to guarantee adequate earning power of investment. “I understand the fallacy of the past in terms of the tariff mechanism in place. But are the expectations met to kick start the review process? Let us tell ourself the truth. Buy and sell mentality has no play in this business.
Neither would economic populism rekindle the power sector. And the prebendalism mentality in governance will not help the matter, when it comes to the appropriate tariff to signal the readiness of the sector to increase access to power and sustain power. “You cannot continue to do the same thing and get different results. It is time to revisit the Electric Power Act and follow the fundamentals of energy economics.”
Fashola, NERC, TCN battle DISCOS
Confirming the inadequacies of the distribution sub-sector, in July 2018, in the face of their call for an increase in tariffs, the then Minister of Power, Works and Housing, Babatunde Fashola, had accused the DISCOs of sabotaging the country’s economy by their refusal to carry out government’s directives aimed at resolving key constraints in the sector’s performance.
Fashola blamed the poor performance of the electricity industry on lapses caused by the DISCOs, noting that the DISCOs had deliberately refused to provide meters to customers, in addition to other acts which were negatively stunting the growth of the generation and distribution sectors, such as load rejection. In addition, Fashola, had in August 2018, at Minna, Niger said, said, “Those who know and who genuinely desire to solve problems in the industry do not need to be told that the most pressing challenge of the power sector today lies at the distribution end.
“Amongst the challenges in this sector of the value chain, the most urgent are distribution of available energy to consumers, and there is unused energy in the region of 2,000 megawatts in this category.”
Key among the shenanigans of the DISCOs, it was disclosed, is there refusal to meter their customers, so that they can continue to bill their customers indiscriminately through outrageous bill forced on the end-users.
Revocation of DISCOs licences
In addition, NERC, had on October 8, 2019, threatened to revoke the licenses of eight out of the 11 DISCOs, citing the DISCOs consistent failure in meeting their obligated remittance to the industry. However, it was surprising, when in January 2020, three months after threatening to revoke their licenses, the NERC went ahead to effect an increase in tariffs.
In his own case, Managing Director of the Transmission Company of Nigeria, Mr. Usman Mohammed, had consistently berated the DISCOs, and had on numerous occasions accused them of frustrating the growth of the electricity sector. In an engagement with journalists last December in Abuja, Mohammed admitted that mistakes were made in the privatization of the distribution companies, noting that today, most of the DISCOs lacked the requisite capital to make any significant investments in boosting electricity distribution.
He said, “I believe that we have made mistakes in the way that the privatization of the Distribution Companies, DISCO, was conducted, and we need to correct those mistakes. I believe the best way to correct that mistake is through the recapitalization of the DISCOs. We should recapitalize the DISCOs so that they would have enough capacity to distribute the electricity that is produced, as clearly, electricity cannot be stored.
“No matter what your generation capacity is, if what the DISCOs can take is little, that is what you would be compelled to generate and transmit. That is how it is. We believe that we can educate Nigerians on what we need to do for the power sector, so that we solve the problems of the DISCOs, which are the elephant in the room that is stopping Nigeria from expanding its potential in electricity. We need to solve that problem.”
Tariff hike is double standards
Going by this knowledge and accusations by the authorities in charge of regulating the power sector, former President of the Trade Union Congress, TUC, Comrade Peter Esele, therefore, accused the government of double standards in the proposed increase of electricity tariff.
Esele, who is also former President of the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, wondered why the Federal Government was still pampering and spending trillions of naira in the electricity sector despite its claims of privatising the sector. He stated that electricity distribution and generating companies had consistently failed to meet their obligations as stipulated in the contract documents signed during the privatisation exercise and wondered why the government should even consider increasing tariffs.
He said, “First thing is that the power sector was privatised and government is spending trillions of naira every year in the sector. I do not know why government is spending such huge money. None of the electricity distribution companies or electricity generating companies has met any of their obligations from the privatisation documents that they signed.
“Now you are going again to increase tariffs. In 18 months, Egypt added 10,000 megawatts to their power generation. As I am talking today, we are still dragging 3,000 megawatts, 4,000 megawatts and 5,000 megawatts. If we go by the way we are generating power, it would still take another 50 years before we can have uninterrupted power supply. “My take in all of these is that they are increasing tariffs, but we are not seeing a corresponding increase in power supply in the country. In my place, I know how much I spend every now and then in buying diesel.
“To make things worse, in my area for instance, we are not charged like every other houses, we are told that they want to make sure we have regular power supply, so we have to pay higher than the normal.
As I am talking to you, there is no improvement in power supply in my area despite their claims.” To this end, Esele advised the Federal Government to hold the electricity generation and distribution companies responsible for the inefficiencies in the power sector, and should, therefore, jettison the planned increase in electricity tariffs.”