Akah: Upcoming Tariff Review Will Be Mindful of Country’s Recession


The acting Chairman of the Nigerian Electricity Regulatory Commission, Dr. Anthony Akah, in an exclusive interview with Chineme Okafor, spoke on sundry issues in the power sector, including the market’s growing illiquidity, the metering plans by Discos, as well as the upcoming tariff review, which he said will be mindful of the country’s economic recession and consumers’ ability to pay. Excerpts:

From your angle as a regulator, what does the N809billion power sector financial shortfall mean?

There is clearly a major issue or constrain which has to do with the liquidity in the power sector right now. And a combination of factors contributed to this liquidity gap, some of which include MDAs debts, volumetric risks and exposure and freezing of the tariff last year, as well as right pricing of electricity tariff, poor collection of revenue by the distribution companies, and also the non-compliance to the market rules.

As the sector regulator, we are working with the various industry players, and the minister of power has equally set up a team to look into that so that issues that involve political decisions can be taken care of and those that involve regulatory interventions can also be taken care of by the Regulator.

A number of proposals have also been put forward on this. We are confident that we will get over this issue. We have submitted our proposal on this to the inter-agency committee headed by the permanent secretary in the ministry of power, and within the commission, we are looking at our processes to ensure that distribution companies improve on their collection efficiency.
As mandated by law, we are supposed to do a minor review of the electricity tariff and the commission is already taking care of that. There are proposals that are waiting for the consideration of the political decision makers, but those that are regulatory, we are taking care of them.

Will you be willing to disclose some of these regulatory actions and proposals you are taking?

There is no doubt that the collection inefficiency is very high in the market at the moment, the Regulator is also constrained at this moment because of the very many court cases some distribution companies filed against the introduction of the Transition Electricity Market (TEM) that would have provided an end-to-end contract based electricity market.
The issue of collection inefficiency wouldn’t have become a problem with the TEM because if you don’t remit the money required, your letters of credit can be called upon and the value chain contracts would not have being facing these problems.

Like in any jurisdiction where such a comprehensive reform was done, there is always these teething problems for three to five years, and after which there are steady increase in the quality and quantity of power supplies when these teething problems are taken care of. We are however not waiting for this long time, we are addressing these challenges and expect that the MDA debts will be cleared up, after which a framework to ensure that all MDA debts are paid or deducted from source.

We hope that the ongoing discussion initiated by some of the distribution companies to have the case settled out of court will yield positive results soon so that we can take off the restraining order and allow the market to play.

Will it be right to say that this restraining order contributed to the market shortfall?

Well, essentially, it limits the extant that we can enforce high collection efficiency in the sector because the letters of credit of the distribution companies cannot be called upon under the circumstances, but we are challenging it in court and confident it will be overturned.
But in the interim, the discussions with our solicitors and that of some of the distribution companies to get it out is ongoing. Regardless of that restraining order, we have the ample power, being mindful of the restraining order, to come up with some other regulatory interventions to bring about discipline in the market and we are already doing that.

These proposals – the regulatory and inter-agency committee, what are their characters and contents?

Essentially, they are geared towards taking away all the liquidity challenges. At this point in time, they are before the decision makers within the political space and it will be unethical to disclose their contents but what is fundamental is that the root causes of the growing illiquidity are being addressed head-on.

We are confident that we will be able to get over this hurdle. Of course, it is clear that electricity must be rightly priced and there are changes in the variables, how that will done is what we are looking at so that there won’t be a rates shock and that it will trigger the desired improvements in the sector.

Are you part of the fresh N100 billion stimulus being negotiated by the NBET and CBN for the sector?

Yes, we are as a regulator and feel it is something that be good for the sector because even if we don’t allow that and the operators borrow money from the commercial banks, the interest rates will impact heavily on the end tariff for consumers, but when such bond is available on friendly terms, it will be tied to areas that will enable the sector improve in its quality and the regulator will monitor this.

We should understand that all inputs to production of power must be recovered through the tariff and if you have a cheaper fund or financial intervention like the bond, it means that increment in tariff will be minimal, but if they have to source for the money through commercial banks which regrettably their books are not good enough now for the banks to give them good money, their interests will also go back to the tariff.
We are working with operators to ensure that such stimulus will not be a waste when it eventually comes to the sector.

You’ll soon do a minor tariff review, and indices like FX and inflation are high now, what will be the likely outplay?

The minor review has to do with review of such indices – FX, inflation rates, gas price, and capacity. In any other business enterprise, those factors are adjusted as changes in the market and we have to get these processes through dynamism.
We have to accept that electricity is a product and treat it as one, and also ensure that consumers get value for money, but if we have to see electricity as a social commodity while all other sectors adjust their prices in line with the economics, then we are not serious.

We have to face the realities. As a regulator, we are coming up with energy efficiency plans to help Nigerians to mitigate tariff increase and save energy because we are wasting electricity.
We also about to operationalise the Power Consumers Fund that will take care of the low income earners to reduce their consumption of power. Most importantly, we are working to come up with a scheme that will rapidly close the metering gap, we will meet the sector players to deliberate on how to implement that.

Have you started the minor review process for the tariff now?

Yes, we have started the process, we are doing the verifications of the data that are needed and the publication of the notice for tariff will be out next week. However, the sector operators are extremely mindful of the recession in the country. They are also mindful of the ability of consumers to pay and are on the same page with us to find a way to ensure that it will not have a rate shock on Nigerians and also help them solve their liquidity problems. It is not as if NERC is flushing with the sector players to rush and increase power price.

Would you mind talking about the new metering scheme, this is based on claims by the Discos that their metering plans may be impacted by the shortfall?

Mindful of that, we are coming up with the proposal but as a Regulator, we cannot announce a regulatory policy without their inputs even if we may not totally accept their inputs. The scheme will relieve them of that burden and encourage investment in the sector and accelerate metering.

Have you concluded the audit of the sector player’s books, what is it looking like?

We have finished some of them, we are still doing some and there are some issues of concern to us, which we have written to them in line with our processes so that we are sure that our findings are based on verified grounds.

We are yet to complete some of them because there is a need to have a holistic process and make a comprehensive pronouncement, but very soon, we will have a holistic picture and be able to provide authoritative information.
Generally, there are some areas of concern to the commission and we have written them to explain.

Your enforcement actions seem to have being stepped up, have you cashed-in the financial penalties, what is the total sum now?

Well, our enforcement has increased and that has also led to increased compliance rates by the operator. Where is infringement, we commence action immediately.
We have sanctioned a lot of Discos for not obeying our regulations especially on issues bothering on customers’ complaints and even the TCN and Gencos. We have gotten some payments from the Gencos, some Discos wrote to ask for reconsideration. Most of them accepted that they violated the commission’s regulations and asked for mercy.

We have given some of them who wrote to us discounts while others didn’t write and we wrote back to inform them of our intention to take additional enforcement actions on them.
We are not unmindful of the fact that any regulated industry where the Regulator imposes sanction and they are neglected, it is as good as not having a Regulator. The commission has resolved in this regard to protect jealously the powers of the Regulator and strictly enforce these sanctions. All the Discos and other defaulters will see further stronger actions if they fail to heed to our enforcement notice.

How many per cent discount did you grant to those that wrote you back?

We gave 40 per cent discount across board to those that wrote back and those that didn’t, we asked that they will pay that including the five per cent interest that runs with the fine for as long as they fail to pay. The commission’s regulations will not be treated with levity notwithstanding their liquidity challenges which we have gone even beyond regulatory mandates to help them out.

The Gencos are of the opinion that the Discos are not totally honest to the market because they take power from them and still don’t remit half the value of what they take and want to sell directly to high demand customers, do you share this opinion?
I must say their concerns are valid on face value, they have the capacity to generate and some of them have stranded power. We are already having an in-house discussion on how to solve this issue and we will call the sector players to have a discussion on all the issues that are affecting the sector.

The law allows for eligibility and the minister of power has to declare this so that the Gencos can sell willing customers, but we are also looking within our regulations on how we can have some stranded powers to productive places so that the Gencos can recover their costs.

What is the outcome of your investigation into the electrocution in Lugbe part of Abuja?

The Lugbe incident is an accident that reflects the generally poor distribution network in Nigeria. The network, upon investigation is totally at variance with the distribution code and all other regulations bothering on safe delivery of power.

Ordinarily, by now, we would have concluded the enforcement action on Abuja Disco if found guilty. We have done our preliminary investigation which shows that Abuja Disco is culpable by delivering power via a distribution network that is significantly at variance with the distribution code.

Necessary sanctions would have been taken by the commission including compensations but as we speak, we regrettably have more than 10 lawyers with multiple court cases claiming to represent the victims and community and in some instance to the disagreement of the victims and communities.

When these cases go to court, the commission take a back seat because we won’t go against the court proceedings. We however appeal to Nigerians on this, that when incidents like this happen, lawyers should stay away because there is already a commission with the ample power to impose sanctions and resolve these issues.

The communities that get lawyers create problems because the commission will stay back and allow the Discos defend themselves in the court for as long as it will take them in court. The lawyers are not helping the communities, we treated the case in Lagos without unnecessary court cases or payments to any lawyer, there are precedents to show that the commission is up to its task in protecting consumers from bad practices of operators. The Regulator does these free of charge, and so people don’t need lawyers to get their claims rectified.