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Committee on Poor Management of Electricity Subsidy Misses Deadline

03 Feb 2013

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Chairman, Presidential Taskforce on Power, Engineer Beks Dagogo-Jack

Festus Akanbi
There are speculations that the latest measure being put in place by the federal government to forestall possible electricity crisis may be frustrated by the bureaucratic bottlenecks currently threatening the probe of the poor management of billions of naira budgeted as subsidy in the cost-reflective Multi Year Tariff Order (MYTO) framework.

The federal government had on January 10 inaugurated a committee assigned with the responsibility of addressing the widening gap in energy delivery across the country as well as payment for such energy deliveries.

The committee was given a seven-day grace period, which expired on January 17, to turn in its report.
THISDAY checks at the weekend, however, showed that the report was yet to see the light of the day as a result of what a source attributed to bureaucratic bottlenecks at the federal ministry of power.

According to the source, the committee has not been able to make any meaningful headway because of its inability to get necessary input from the ministry, a development said to have frustrated attempts to dig into the subsidy arrangement in the power sector.
The source explained that the committee could not hold its meeting to finalise the report as expected because the officials of the ministry of power expected to provide the logistics appeared busy.

A member of the committee who also doubled as the Chairman, Presidential Taskforce on Power, Engineer Beks Dagogo-Jack, could not confirm the frustration of the committee when our correspondent spoke with him last week.

Dagogo-Jack who was on official duty outside the country when our correspondent called, however, promised to get back when he returns.
However, a source who said he was not surprised at the turn of events, said it is normal for the ministry to do everything to delay the report of the committee given the fact that it is at the centre of the crisis.

“We need to remember that government’s decision to probe into the matter was based on the findings that the Ministry of Power seemed to have vied funds earmarked for 2012 electricity subsidy into settlement of PHCN historical debts without a presidential approval. The move was, however, resisted by the National Electricity Regulatory Commission (NERC), which raised a red-flag indicating possible foul play in the process,” the source said.

Government’s decision was said to have been informed by a report that about N178 billion approved as electricity subsidy, intended to last from 2008 to 2011, as well as an additional N46 billion budgeted in 2012 may have been mismanaged by operators in the Nigerian Energy Sector (NESI), exposing the distribution companies to huge indebtedness.

Accordingly, the committee, which members include the Minister of State for Power, Hajia Zainab Kuchi; Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi; Director of Budget Office, Bright Okogu; the Transmission Company of Nigeria (TCN); Chairman of the Presidential Task Force on Power (PTFP), Dagogo-Jack, and the Market Operations of TCN, would have to work out measures to address such issues of delay or non-payment for the electricity supplied by the various PHCN distribution companies.

Vice President Namadi Sambo inaugurated the committee. It was given a week to turn in its report.
A concerned Vice President Sambo had raised the committee to resolve the issue, noting that government’s intervention in the power sector was for the purpose of creating jobs and ensuring constant and reliable electricity, not to create additional debt burdens.

In an earlier interview with THISDAY, Dagogo-Jack had explained that the subsidy, which had a two-year lifespan, is expected to provide cash to the market given the realisation that electricity consumers may not be able to afford the total cost of electricity while a transition from government to the private sector is taking place.

“Government has realised the fact that the tariff could be too high for consumers. That is why government is paying a percentage so that the consumers will pay the other half.

“The problem is that if such subsidy does not get to the DISCOs, they will not be able to run their businesses,” the taskforce chairman said, a development he blamed for the breakdown of some power plants in recent time.

According to him, the subsidy does not belong to the DISCOs alone. Part of the money has to go for the settlement of energy and gas, saying that if the DISCOs fail to pay for the gas and energy supplied, there will be a big problem and the whole nation will be plunged into darkness.

The committee, he said, was meant to instill discipline in the distribution of the subsidy payment.
He explained that the subsidy arrangement was intended to bridge the gap between the real tariff and the difference, which would be borne by consumers.

In its effort to provide a viable and robust tariff policy for the Nigerian Electricity Supply Industry (NESI), NERC in 2008 decided to introduce MYTO as framework for determining the industry pricing structure.

The MYTO methodology provides the process to be followed in complying 15-year tariff path for the industry with minor and major reviews bi-annually and every five years respectively.

The key principles of cost reflectivity and affordability were taken into consideration in evolving the new tariff regime. This formed the basis of the Multi-Year Tariff Order (MYTO) methodology. The MYTO further provides for continuous reduction in transmission and distribution/retail loses. Revenue earned by operators is made dependent on achieving these performance improvements.
NERC proposes electricity subsidy in the MYTO to the Federal Government, which in turn mandates the CBN to pay subsidy amount to the Market Operator (MO).

In the MYTO-1 framework, settlement statement was prepared by the Market Operator and sent to the Ministry of Power, which transmits it to NERC and then to Ministry of Finance for payment to the Market Operator. MYTO-2, which took off mid 2012, eliminates the former modalities such that settlement statement is prepared by the MO and sent to the Ministry of Finance. The Ministry of Finance sends to the Central Bank of Nigeria which pays to MO. NERC and Ministry of Power however have reserved rights to audit the MO to establish acts of irregularities.

Tags: Business, Nigeria, Featured, Electricity Subsidy

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