Electricity tariff: NERC’s stumbling block



Onoakpoma Ohimor

21 November 2015, Sweetcrude, Lagos – The first week of November 2015 marked two years that successor generation (Gencos) and distribution (Discos) companies of the defunct electric monopoly came under private ownership. That singular event marked a watershed in the Nigerian Electricity Supply Industry (NESI).

The collective aspiration that fuelled privatisation of the industry, despite obstacles and delays, remains unchanged – reliable and constant power supply. This perhaps was why Nigerians were full of praises for the new administration when just after a few weeks in office significant improvement in power supply was observed.

While some commentators attributed the improvement to President Buhari’s body language, an euphemism for his anti-corruption stance, others, particularly sympathisers of the previous administration and operators within the industry, opined that the improvement was the result of accumulation of various efforts and implementation of policies in line with the Power Sector Reform Act.

Whether it is the coming on board of the present administration or the efforts of the past one, the sudden drop in supply and inability to sustain the improvement simply confirm NESI still has a long way to go and our collective aspiration for reliable power supply remains a dream.

Tariff Moves to the Front Burner
While consumers were at a loss as to the sudden reversal in power supply, the issue of tariff increase surfaced from nowhere. The Discos held consultations with select consumers in what looked like a one-sided pontification session where they basically informed their consumers on the need for increase in electricity tariffs based on news reports. These consultations provided a unique platform for Discos to have achieved much more but they woefully missed it. I will return to this point later in the article.

Subsequently the Discos submitted proposals for tariff increase to the Nigerian Electricity Regulatory Commission (NERC) ranging between 5% and 60% for various categories of consumers. Initial comments by NERC’s Chairman suggested that the tariff increase was a done deal, as he reiterated the need for cost reflective tariff and that a new set of tariff would be in place by end of October 2015. This was followed by public outcry protesting the planned increase.

NERC seem to have developed some cold feet on the issue if recent statements are anything to go by. The Commission’s Chairman stated that the principles of prudence and affordability will be applied in the review of tariff. Furthermore, he stated that the final tariff to be approved will not give the distribution companies what they do not deserve and one that will commit them to quality service delivery. The Vanguard newspaper article of November 10th 2015 headlined “Confusion over NERC’s stand on Electricity Tariff” aptly summarises the Commission’s dithering on the issue of tariff review.

Clearly, the industry regulator appears to be in a quandary over the proposed tariff increase. It is not unconnected with the view of the present administration as enunciated by the Vice President, Prof. Yemi Osinbajo at the Manufacturers Association of Nigeria annual general meeting held in October 2015. He voiced Nigerians discontent with the electricity supply situation and pointedly expressed the fact that there is no justification even for the present tariff Nigerians are paying based on the current poor supply.

NERC’s Dilemma and Operators’ Mode
NERC’s dilemma is understandable in light of the change in administration following the general election, but it is largely self-inflicted. As part of promises to would be investors and based on provisions of MYTO2, tariffs were projected to go up over the first few years following privatisation. The increases will enable investors recoup their investments and also attract additional investments to the industry.

Going by certain reports, increases ought to have been carried out sometime in late 2014 or early 2015, but due to the elections, they were shelved. From the look of things it appears all that the players in NESI (Discos and Gencos) are interested in is the planned tariff increase. Pertinent questions are; what about the expected improvements in electricity supply? What innovations or milestones have the new owners and Discos in particular achieved over the last two years? What reductions have been achieved with respect to commercial losses?

The quest for tariff increase by the industry operators is understandable as their primary motive is profit above all else, after all they are not charitable organisations or agencies of government. The onus is on the regulator to ensure hapless consumers are not oppressed by the new private operators. If they are unable to meet basic targets relating to metering of consumers how can we expect them to bring more supply to the table or even significantly reduce losses?

The industry operators need a shift in orientation. The “make the money at all cost” attitude without commensurate improvement in service quality will not help their cause, in fact it can be harmful in the long term.

Without sustainable improvements, tariff increase will continue to be a hard sell. Except the new Minister in charge of Power is sympathetic to their cause, the posture of the present administration definitely will not support unjustified tariff increase.

Developing Win-Win Solutions
In fairness to the operators, particularly the Discos, the challenges of the power sector are enormous. A case in point is the huge debts owed by public sector and government institutions which run into tens of Billions of Naira across all the Discos. But ordinary consumers, both commercial and residential, should not be the ones to pay for the rot in the sector and the lack of investments over the last two or three decades.

Rather than the undue fixation on tariff increase as the panacea for all the problems of the sector, both the operators and the regulator need to develop innovative solutions that will deliver quick and lasting wins for all.

The recent consultations with consumers provided Discos ample opportunity to come up with innovations to sell to consumers or at the very least showcase milestones achieved over the last two years rather than just educating them on the need for tariff increase.
As stated in a previous article, significant number if not the majority consumers are ready and willing to pay more for electricity supply subject to reliable supply. After all, the cost of private generation in some cases is as high as 500% of current tariffs. Any tariff increase that will not guarantee constant and reliable supply thus enabling consumers to wipe out the cost of private generation will amount to a double whammy.

It is my humble opinion that there is scope for increase in tariff for certain categories of consumers if the additional and burdensome cost of private generation is removed from the picture. With the failure of the Discos to take the initiative and come up with the needed innovations, the onus is on the regulator to incentivize the industry and deploy a carrot and stick approach that will deliver our collective aspiration. For now, let’s dwell less on tariff increase and more on improving service.
*Onoakpoma Ohimor is a Lagos based energy and finance consultant. oohimor@gmail.com

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