Govt backs NERC on electricity tariffs hike

26 July 2016, Abuja – The federal government said it has lent its support to the decision of the Nigerian Electricity Regulatory Commission (NERC) to appeal against a recent ruling of a Federal High Court in Lagos against the 2015 Multi Year Tariff Order (MYTO) thus reversing the electricity tariffs of distribution companies (Discos) in Nigeria.

NERCThe government said its decision to back the regulator was based on pure economics, adding that electricity tariffs in the country cannot remain fixed when all the economic inputs often used in the generation, transmission and distribution of electricity varies.

The Minister for Power, Works and Housing, Babatunde Fashola stated this recently in Abuja when the Nigerian Bulk Electricity Trading Plc (NBET) signed Power Purchase Agreements (PPAs) with 14 firms for the construction of 1,125 megawatts (MW) of solar power in the country.

Fashola noted that it was natural for electricity tariff in the country to react to extant economic realities if certain costs which are factored into electricity production like foreign exchange; price of gas; import duties; inflation and others increased or decreased.

He explained that the judiciary had in the judgment against the tariff sidestepped these economic fundamentals, but that NERC’s approach to appeal the judgment was good and necessary to safeguard investments in the sector.

“Your investment is coming at a time when skeptics are doubtful of whether or not the government would see the privatisation of the sector through or whether the process would be reversed.

“This is a time when seemingly unusual things are happening in the sector. This is the time when we are having judicial intervention on issues of tariff stability, issues which are purely economic.

“Without doubt, the judiciary is blameless. It must discharge its constitutional duty. If anything may be said, it is that for the first time, electricity consumers now have a platform to ventilate their grievances,” said Fashola.

He then said: “I must therefore not fail to commend our regulatory agency, the NERC, for the public position it has taken regarding the recent judgment of the Federal High Court in respect of electricity tariff. The Commission has shown that though it disagrees with the judgment, it feels bound by it and is challenging it as the law allows. This is the meaning of the rule of law.”

“To me, this is a positive sign for our fledging power sector and Nigerian economy. It is a positive sign away from impunity and lawlessness. It is a sign away from an era when no questions could be asked of utility providers or regulators and the exercise of their statutory powers.

The decision of NERC to respect the judgment is a sign that conflicts and differences in the power sector could be resolved in a democracy. To my mind, these are the hallmarks of a good economic and investment destination,” added the minister.

He said notwithstanding the outcome of the judgement, stakeholders in the sector must take up the challenge to educate Nigerians that electricity was an economic good that should be priced appropriately.

According to him, “I consider the judgment as a veritable opportunity for us to re-educate ourselves and our people about electric power as an economic product. And like any other product, it is important for us to understand that it is manufactured through a mechanical process and sold to the consumers in a profit or loss environment.”

“This is an opportunity to adequately inform our people that following the deregulation of the sector, price of electricity is now subject to other market forces. Thus changes in economic indices are bound to reflect in what our people pay for their electricity.

“It must follow therefore that if the cost of foreign exchange, the price of gas, the duty on import goes down, the price of power must also come down. And if the reverse is the case, this will also affect the tariff.

“This is therefore an opportunity for all of us as stakeholders – whether we are investors or consumers, whether we are the policy makers or the regulators – to appreciate the fact that tariff is not permanent and is not expected to be permanently fixed,” added Fashola.

 

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