24 March 2015, Lagos – Against the backdrop of criticisms that the recent removal of distribution losses from electricity tariffs and the subsequent reduction of the amount payable by consumers was a political move, the Nigerian Electricity Regulatory Commission has said the decision is based on its technical work.
NERC had last week announced that collection losses would no longer be automatically passed on to consumers by the electricity distribution companies, adding that the new order had reduced the tariffs to be paid by all classes of consumers.
An energy law and policy expert, Mr. Ayodele Oni, who is also a Senior Associate at Banwo & Ighodalo, told our correspondent that the decision by NERC smacked of politics, adding, “It doesn’t make commercial sense.”
“It (NERC) is really changing the rules mid-way into a game. There is a five-year loss projection for each Disco and this new approach unjustifiably accelerates it without taking investors into consideration. I do not think it is an independent NERC decision,” he added.
According to Oni, with the new order, it appears that the government is not honouring the agreement anymore, a move that does not augur well for trade, commerce and investment.
He said, “The idea was for each Disco to reduce the collection losses by certain agreed percentages over a period of five years. Suddenly, the regulator changes it. What it could also mean is that the government is further reducing its 40 per cent stake in these power distribution companies.
“I believe the bankers and financial institutions will be rather uncomfortable now. It just doesn’t make sense.” The Managing Director,
said the new directive could impact on the ability of the power firms to pay gas producers and affect gas development for power.
“That is a bad thing. We had overcome the problem of ensuring that electricity tariff is increasing under the Multi Year Tariff Order regime, why suddenly politicise it and now cut tariff by 50 per cent, therefore putting the entire process in jeopardy?” he added.
The Chief Executive Officer, Financial Derivatives Company, Mr. Bismarck Rewane, had said, “The jury is out on the implications of these policies on the efficiency and sustainability of the Nigerian power sector. The knee-jerk reaction of policymakers under political pressure will negatively affect the attitude of potential investors in other projects.
“Once elections are approaching, the decisions usually made are politically wise but business foolish.”
However, the Chairman, NERC, Dr. Sam Amadi, said in a telephone interview with our correspondent that the new directive would take effect by the end of this month, adding that the Discos would have to come up with strategies to deal with the situation and come back to the commission.
Asked if the new order went down well with the Discos, he said, “Why will somebody be happy that they won’t be earning more money? We were meant to do the proper thing and we followed the rules and processes.
“The Discos have come to us to complain and we told them that transactions with the Bureau of Public Enterprises are subject to regulatory directives. As much as possible, we try to preserve the contracts but it doesn’t stop us from asking the Discos to do the proper things.”
The Head, Power and Other Real Sector Business Segment, Ecobank, Olufunke Jones, said when the private investors in the Discos took over, the first thing they should have dealt with was the collection losses.