A Review of the Nigerian Energy Industry

NERC: Electricity market competes with antique business model

10 March 2015, Abuja – The Nigerian Electricity Regulatory Commission (NERC) has said old-fashioned business model, which emphasised on deliberate electricity mispricing and entrenchment of inefficient production and consumption are responsible for acute shortage of electricity in Nigeria.

NERC, which described as false, claims that it is more of a tariff making commission, spoke of its determination to drive up growth in electricity production and consumption in the country, using the right tariff structure.
Chairman of NERC, Dr. Sam Amadi said following consumers’ complaints of raise in electricity rates, that without the right business model, the huge capacity gap in Nigeria’s electricity industry will linger notwithstanding her endowment in various natural resources for electricity generation.

Amadi said at a recent electricity consumers’ forum in Abuja that the years, Nigeria has failed to properly align the prices paid for electricity with the cost of producing electricity.

He noted that the design of the current tariff framework in the Multi Year Tariff Order (MYTO) was based on the twin principle of prudent cost recovery by operators and fair, reasonable and affordable rates charged to consumers.

“NERC has often been caricatured as a tariff commission. We are convinced that getting the tariff structure right in this market is a critical component of series of actions that are required to fix the electricity industry in Nigeria,” Amadi said.

He further explained: “We don’t have stable electricity in Nigeria because we have not made the right INVESTMENTS to build capacity. The huge capacity gap in the sector cannot be met with public finance, no matter how endowed Nigeria is.”

“The business model of the past is what is responsible for the continuing acute shortage of electricity. The heart of that model is a policy of deliberately mispricing electricity and entrenching inefficient production and consumption,” Amadi added.

Speaking more on consumers’ complaints about the upward electricity rate review, he said: “People asked why we don’t wait for power to improve before prices are increased. They argue that as long as we have improved and stable power supply, people would be willing to pay higher price for electricity. Something is wrong with these statements.

The only way we can grow capacity in this market is to show that prices are properly aligned to cost. The MYTO helps us provide clarity as to how prudent costs are recovered by efficient operators.”

He further said that the commission is obliged in the reform act to ensure that every efficient operator recovers prudent costs of producing and supplying electricity.

“At the same time, we are also obligated to ensure that tariffs are fair, reasonable and affordable.

The design of the tariff regime in the Nigerian electricity market is based on the twin principle of allowing recovery of prudent cost incurred by efficient operator and ensuring that customers pay only fair, reasonable and affordable tariff,” he added.

– This Day

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