24 November 2017, Sweetcrude, Lagos – The Association of Nigerian Electricity Distributors, ANED, has responded to controversy over notice of force majeure to the Bureau of Public Enterprise, BPE, by the electricity distribution companies or Discos on recent issuance of the Eligible Customer regulation by the Nigerian Electricity Regulatory Commission, NERC, describing it as “premature”.
In a statement signed by ANED’s Executive Director, Research, and Advocacy, Barr. Sunday Oduntan on Thursday, the association said while it does not question the legitimacy of the Minister of Power, Works, and Housing, Babatunde Fashola’s right to declare Eligible Customers, it believed that the declaration is premature and is inconsistent with the pre-conditions established under the Electric Power Sector Reform Act, EPSRA, 2005.
According to ANED, there was a missing link as the level of competition envisaged for such declaration which ought to be accompanied with sufficient power supply does not currently exist, nor has there been an implementation of the Competition Transition Charge that is specified under the Act.
The Eligible Customer regulation allows for certain customers who consume more than 2 MWhr of electricity per month to leave the Disco network and contract directly with power generators for the supply of power.
The primary objectives of this arrangement are to promote competition and increase the supply of power.
Among other issues which the association said begged for clarification, it explained why the issue of Competition Transition Charge was important.
According to ANED, Eligible Customers are the premium customers that cross-subsidise the cost of providing electricity to the residential class of customers.
Such cross-subsidisation, for some Discos, ANED said, is based on a ratio of N10/kWh of Eligible Customer consumption to N1/kWh of residential class consumption.
The same class of Eligible Customers also contribute an average of 60 percent to Discos’ revenues, it explained.
With the removal of Eligible Customers from the Disco network, the association claimed that the huge revenue gap left, will be imposed on the residential class of customers by an increase in their tariffs, under the Competition Transition Charge.
An initial analysis of the impact of the Eligible Customer regulation indicated the need for a minimum tariff increase of N4 per kWh on the residential class customers.
In other words, residential customers, some of whom are already dealing with issues of affordability, will have to bear the burden of the premature implementation of the Eligible Customer regulation, according to ANED.
While there may be policy announcements that try to counter the above fact by stating that such increases will not be imposed on the consumers, ANED said the question must be, “How will the gap be addressed?”
“If the answer is via a subsidy, it is then important to highlight that the current market shortfall of N892 billion through August 2017, is a product of similar commitments that have not been met – a) Debt free books; b) Cost reflective tariff; c) Payment of N100 billion of subsidy; d) Payment of MDA debt; and e) Commitment to return of; and return on investment for the investors”, it argued.
Explaining further, Oduntan said the Eligible Customer regulation will further contribute to the Discos’ inability to recover the revenues that will enable them to make the capital investment that is critical to injecting efficiency into the supply of electricity to their customers.
Director-General, BPE, Alex Okoh had on Tuesday condemned the notice of force majeure by the Discos to the Federal Government.
In a letter to the Discos, Okoh rejected the laim that there had been changes in law and political force majeure event pursuant to certain clauses in the Performance Agreement which the core investors in the Discos signed with the BPE.
On Monday in Abuja, BPE’s Head, Public Commission, Chukwuma Nwokoh, also rejected the notice by Discos to declare force majeure.
In a series of tweets on Wednesday, NERC described the Discos’ force majeure declaration as “premature”.