A Review of the Nigerian Energy Industry

Fears over possible hike in electricity tariff

14 December 2014, Lagos – The recent review of factors that form the Multi Year Tariff Order (MYTO) framework by the Nigerian Electricity Regulatory Commission (NERC) suggests that an imminent increase in electricity rates paid by consumers may be inevitable, writes Chineme Okafor

The new domestic price of $3.30 approved for gas supply to power plants by the Nigerian Electricity Regulatory Commission (NERC) and changes in other key factors that are often considered by NERC when setting electricity tariff may lead to another increase in rates paid by consumers for electricity services across the country.

Power distribution transformerTHISDAY had following a public consultation on the scheduled minor review of the Multi Year Tariff Order (MYTO-2) by NERC in Abuja, learnt that while the new gas price was formally expected to apply in operations within the country’s electricity market this December, the development, in addition to changes in official exchange rate, inflation rate and overall generation capacity which are often considered by NERC in setting the tariff within the MYTO framework may as a matter of fact force an adjustment in electricity rates.
But NERC which had in collaboration with the ministry of petroleum resources, agreed to raise the price paid for gas as fuel for electricity production to $2.50/million British thermal unit (mbtu) and transportation cost of $.80 effective from December 2014, has also come out to flatly deny a possible increase in electricity rates after the MYTO review.
Its chairman, Dr. Sam Amadi, said in response to questions on that issue and the lingering meter crisis in the industry that the commission or federal government had not given in to such thoughts. And in a manner that suggested that he was not oblivious of the challenges at hand, he said the distribution companies would rather be asked to seek alternative sources of funding their established shortfalls outside of tariff increment.
“There is no plan to increase tariff for consumers by NERC or the federal government, as you know very well these tariffs have been unbundled to the various Discos,” Amadi said while responding to a question on that at the last ministerial press briefing of the ministry of power in Abuja.
He also explained that based on agreement with the Bureau of Public Enterprises (BPE) on review of the Aggregate Technical and Commercial (AT&T) losses, NERC and the Discos had completed a study on the loss levels and found that the financial requirement of doing business for each of the Discos had increased because the benchmark for losses were higher.
Stressing government’s acclaimed policy safeguarding consumers from experiencing harsh tariff increase, Amadi explained that NERC was clearly of the view that tariff should not be increased for residential consumers until there is considerate and almost palpable electricity service improvement.
Consequently, he said, “The Discos should not give increased tariff as much as possible to residential consumers, they should find a way to recover their money. So, please discountenance reports that say that NERC or the federal government has increased tariff for residential consumers.”
But as much as such denial of imminent rate hike seems to reverberate from the commission, an earlier presentation that was made at the ATC&C loss consultation by Roland Achor of the commission’s tariff and rates division confirmed the inevitability of a hike in the next review; how such cheeky development will be managed by the commission and relevant operators is however left to be imagined.
Details from the presentation indicated that in working out the parameters for MYTO-2, the regulator had projected a 13 per cent inflationary rate but the current in-country rate of inflation stands at 8.3 per cent, a 0.5 per cent difference from the 7.8 per cent that was used in the previous review in June.
Similarly, the commission had benchmarked $1 to N178 as exchange rate but the rates obtained by it from the Central Bank of Nigeria (CBN) as at September 2014 when the review was done showed a $1 to N156 exchange ratio to still give out some ray of hope for consumers in the expected price review. The exchange rate has however been recently revised to further give the dollar some more advantage over the naira, this is expected to impact on the sector.
In addition, factoring the newly approved domestic gas price into the tariff showed that there will be a $1 increase in the price to be paid for gas supplied for power production. NERC had earlier made a $2.30 assumption in the MYTO review before a new gas price was approved; there is also the consideration on differences in the average generation capacity expected in the review. The commission had pegged generation capacity at 3,657 megawatts (MW), about 1,905MW different from its 5,556MW projection and 251MW slight increase from its last June benchmark of about 3,406MW. The economic principle of demand and supply explains the far-reaching impacts of price in such interplay.
Already, NERC’s Commissioner for Market Competitions and Rates, Mr. Eyo Ekpo, had said in announcing the commission’s position on the development that the commission would aggregate the review results and after inputs from the stakeholders, announce a new tariff structure that is expected to kick off in January 2015.
As expected, the news of a possible increase in electricity rates hasn’t gone down well with consumers who were at the meeting. Electricity consumers had in expression of their fears rationally opined that there was no way an increase in gas price will not trigger an increase in electricity rates especially putting into consideration the fact that the June 2014 MYTO review by the commission saw a slight increase in retail tariff paid by consumers across board even at the then prevailing $2.30/mbtu price of gas.
And so, with the $1.00 increase in gas price, consumers noted that the possibility of a significant increase in the tariff may not be far from reality. Such fears however extend beyond the possible tariff hike to include improvement in service delivery which the Vice Chairman of NERC, Mohammed Bello, in his remarks emphasised when he said, “Consumers complain of paying too much for electricity while they are yet to see improvements but I believe that this is the process by which power supply will improve.”
In June 2014, NERC had in its review of the MYTO superintended an increase in the energy cost component of the tariff from N1 to N5 for various distribution companies. The commission had explained then that the review considered the prevailing inflation rate, exchange rate, gas price and available generation capacity and notwithstanding promises of service improvement especially in metering of consumers, the situation remains far from better.

A likely showdown between consumers and operators looming
To imagine what the relationship between electricity consumers and operators especially distribution companies will look like in the event of a tariff hike without commensurate service delivery, one only needs to consider the recent unexpected visit of the Governor of Ekiti State, Ayodele Fayose, to the headquarters of NERC, ostensibly to lodge complaints of poor electricity services in his state.
And perhaps by chance, Fayose’s visit which coincided with the monthly meeting of the regulator with chief executive officers of service providers in Nigeria’s Electricity Supply Industry (NESI); distribution, transmission and generation companies, also gave operators a hint as to how frustrated consumers have become with the level of poor and expensive services rendered to them by distribution companies.
Fayose had in explaining the reasons for his impromptu visit, stated that he only recently succeeded in breaking off a potential civil unrest linked to incessant poor electricity supply in his state.
He had noted that streets in and around the state were taken over by angry residents in protest of their continued neglect by the distribution network responsible for the state.
Stunned by the rather lame response from an official of the distribution company that oversees Ekiti state, Fayose said, “I was there when they called Benin Electricity Distribution Company because it was a bad situation and your people were beaten up at some point and your office vandalised. And they (angry mob) were moving from one community to the other if not for my intervention. So, if you have not been briefed then it is unfortunate. It is very unfortunate because they shut down the whole state for more than half a day.”
He further said angrily that, “This is not a joke and that is why it should be done ASAP because if we leave this matter hanging it portends great danger.”
Putting into considerations reports from the ongoing nationwide public consultation on electricity services vis-à-vis provision of metering facilities for accurate measurement of consumers’ consumption which the NERC has initiated, Fayose’s account isn’t in any way different from what consumers across the country are regularly made to go through.
Until now, electricity distribution companies had often disregarded extant orders of the regulator to improve on their services to consumers. The nationwide consultation on prepaid meters under the Credit Advance Payment Metering Implementation (CAPMI) scheme showed that almost all the distribution companies have failed in executing that order and instead continued with the unwholesome and unethical estimated billing method.
Under the CAPMI scheme which cannot be said to have yielded the desired outcomes, willing customers can pay cash for electricity meters and get reimbursed through energy credit. The scheme requires that the meters are supplied and installed for customers by the Discos within 45 days of payment.
There is no hiding the fact that the upcoming tariff review may result in increase in prices paid by electricity consumers across board, what remains to be seen is how the regulator will manage sentiments that will come with such development because consumers in Abuja for example are perhaps already on the edge.


– This Day

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