What new electricity tariff will do to the economy — NECAN

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…Says six reviews in five years have not yielded result, recent increase up to 200%

The latest hike in power tariff has attracted comments from many persons and organisations. In this interview with UDEME AKPAN, the National Secretary, Nigeria Electricity Consumers Advocacy Network, NECAN, Mr. Uket Obonga, said the tariff should not be allowed, as it could lead to closure of businesses, unemployment and loss of revenue in Nigeria.

How do you react to the recent tariff hike?

It is rather unfortunate that this is happening. It shows that the Nigerian Electricity Regulatory Commission, NERC, may not be sensitive to the plight of Nigerians, who are currently passing through very tough economic situation. In other words, the timing for the hike is very wrong. NERC is only yielding to pressure from the Electricity Distribution Companies, DISCOs, who believe that Cost Reflective Tariff is the solution to their problems. They refuse to accept the fact that it would not work under the current structure and market environment. I am also wondering why they call it ‘minor’ review when it is very high up to 200 per cent or more in some cases.

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Is NERC justified to emerge with the tariff?

As a regulator, the Commission has powers to carry out such a review, but it may not be right under the present situation. It should be noted that the same reasons were given in 2015 for the minor review, which did not culminate in the DISCOs expanding networks to improve services to consumers. Recall that before they were given that level of tariff in 2015, they had promised then to meter the customers. Similarly, I do not think the exogenous variables that informed the 2015 review have warrant another review. Only the inflation rate has jumped from about seven per cent to the current 11 per cent. The price of gas was increased in 2015 to $2.5 per a thousand cubic feet. The dollar-naira exchange rates in 2015 was N350 per dollar and it has remained so ever since.

In your opinion, what do they intend to achieve, and is the basis of calculation right?

They are yielding to the demand of the DISCOs for a Cost Reflective Tariff. As I said earlier, the request will be unending as long as the situation remains the same. We can only talk of giving the DISCOs Cost Reflective Tariff if all electricity consumers were metered to eliminate estimated bills. In addition, consumers are made to pay for power supply consumed. The level of exploitation of consumers through estimated billing by some of the DISCOs does not support this tariff. The basis of calculation is not right, when we consider the variables that are supposed to inform the price increase.

How will the tariff affect consumers and the Nigerian economy?

Consumers have not yet recovered from the impact of the last price increase in 2015. Those who are negatively affected are Residential R2, Commercial C1 & C2 and Low Voltage Maximum Demand Customers. Others are the high voltage customers and industrialists. Currently, we know of some hotels that spend 60-70 per cent of their revenues on energy bills and alternative energy generation through diesel. Further increase would cripple these businesses and lead to closure of a good number of them. Similarly, smaller businesses like welding, barbing salon, hairdressing, restaurant/bar owners will not be able to cope with the proposed price increase. As these businesses close down, jobs will be lost and unemployment rate will increase, worsening an already bad situation. The hike also will affect cost of goods manufactured locally, leading to inflation. Government at all levels will lose taxes from collapsed businesses. Foreign goods will be cheaper than locally manufactured ones. Standard of living will drop further as many Nigerians would be made poorer. Many Nigerians who cannot afford to pay energy bills will resort to energy theft, meter bypass and other illegalities. The DISCOs whose desire is to increase their revenues will see that their revenues will drop significantly, as many consumers will opt out of supplies on their networks.

How many tariffs hike were done in the past and did they make any impact?

All together, we have had six tariff reviews in five years. They did not make impact on the sector. As long as the conditions that informed the previous reviews remain, there is no assurance that the current review will be different.

What were the expectations from TCN, JENCOs, DISCOs etc. at privatization and have they lived up to expectations?

On a general note, none of them has lived up to expectation. For instance, TCN is still battling with inadequate and dilapidated transmission infrastructure across the country. The lines are old and need to be changed with new ones, their transformers and stations across the country are equally begging for replacement. Though transmission capacity increased from 5,000MW to 6,000MW, it cannot be relied upon as we have constant system collapse. In 2013, transmission capacity was about 4,600MW, it rose to 5,000MW in 2014 and in 2018. According to data obtained from the Association of Power Generation Companies, APGC, the capacity rose to 6,500MW and we are told that they have scaled that up to 8, 000MW now. DISCOs remain the weakest link in the chain. They have performed dismally in areas like customer enumeration, metering, reduction of aggregate technical commercial and collection losses, revenue collection and remittance, development and expansion of their networks remain the same.

How do you assess the role of the Minister of Power and NERC?

The minister is empowered to recommend to the President those to be appointed commissioners and chairman/CEO of NERC. However, that appointment was not made until 2017. The gap affected the sector, particularly as major decisions were not taken to move the sector forward. NERC has some issues; including under staffing, as the population of its staff currently stand at about 177.

Was there any engagement with consumers in the process of working on the Tariff?

The Nigerian electricity supply industry is made up of three critical stakeholders, meaning that the market stands on a tripod, involving the regulator/government on one side, the operators (TCN, Discos etc) and consumers. The Electric Power Sector Reform Act of 2005 clearly documented that the tariff rate setting must be done through consultation with critical stakeholders. In this case, nothing of sort was done and for us, whatever they have done is an exercise in futility that cannot stand.Electricity, TCN, DisCos, NUEE

Which problems exist in the sector and how can they be tackled?

The sector has many problems, which cover transmission infrastructure that is rapidly decaying and needs replacement. It lacks the required liquidity to fund projects. Therefore, the Federal Government has no option but to increase funding for TCN. The GENCOs complain of lack of gas and low water levels. However, we believe that since gas is produced locally and much of it is flared daily, government should consider bringing down the cost from $2.50 to $1.50; to ease the burden on the GENCOs. On distribution, we know that the distribution end in the power chain is the weakest link and it is in a very poor state due to lack of investments, the DISCOS have not really invested in their networks. Recently, I was travelling along Calabar – Ikom highway, and within 10km, I counted 42 fault lines. You can see the state of dilapidation of infrastructure. The current DISCOs do not have the financial and technical capacities to manage the franchise areas, currently given to them and because the areas are too large, we are suggesting that the areas should be reviewed and immediately reduced to a manageable size so that whatever is taken out of them can be given to other investors.

Also, the sector lacks accurate data. On the number of customers, it is my opinion that the Federal Government should organize a nationwide customer enumeration exercise to determine the actual number of electricity consumers in Nigeria as this will help us to know what the DISCOs are actually collecting and remitting. It is our view that the CBN should take over metering customers nationwide and ensure that every consumer is metered in order to eliminate estimated billing. The DISCOS must be made to scale down on aggregate technical collection and commercial losses, which now stands at over 50 per cent to maximize revenue collection. The sector needs more transparency and accountability, if it must survive. Load rejection must be stopped and the DISCOs should be compelled to receive loads allocated to them. The current payment for 1,100MW of electricity supply out of the 3,700 MW given to them is too poor.

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The Federal Government has 40 per cent equity holding in all the privatized companies, which appears to be high. The government should consider giving up 20-25 per cent to other investors in order to attract funds and other resources for the development of the sector. The size of the franchise areas should also be reduced to pave the way for the advent of new investors. We have to domesticate the current model, which we adopted from India, taking into consideration the domestic issues in Nigeria.

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