Power Stakeholders Canvass for Cost Reflective Tariffs

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Solomon Elusoji
In light of the recent force majeure declared by power distribution companies in the country as a result of the “eligible customers” policy introduced by the federal government, representatives of the major stakeholders in Nigeria’s power industry have expressed common views that electricity tariff needs to reflect the cost at which it is generated and distributed.

These views were expressed at PwC’s 2017 Power and Utilities Roundtable held in Lagos, yesterday.
“There is no rocket science to the energy business, but it is important that there is full alignment of all its component,” the Managing Director and Chief Executive Officer of Benin Electricity Distribution, Mrs. Funke Osibodu, said, during a panel discussion. “There is a need to change certain parameters that will force the system to work; we need a pricing system that can work.”The CEO of Sahara Power Group, Mr. George Oluwande, also noted that the pricing system has led to power generation companies being owed more than a billion dollars. According to him, Egbin Power Plant, which belongs to Sahara, is being owed 300 million dollars. “Cost reflective Tariff is important to us,” Oluwande said. “The sector is a value chain, and if one part is weak, the others are too.”

Large swathes of the Nigeria power sector was privatised in 2013, but electricity tariff continues to be watched closely by government. The current Minister of Power, Works and Housing, Mr. Babatunde Fashola, oversaw an increase in the tariff when the Nigeria Electricity Regulatory Commission (NERC) announced a 45 per cent increment in January 2016, but investors in the privatisation process say the rate still does not reflect the cost of generating and distributing the invaluable commodity.

“You need to start with people who can actually pay for power,” Principal Investment Officer at the International Finance Corporation, Mr. Femi Akinrebiyo argued. “We need to focus on how do we pay for electricity. Even in the beginning of electricity, despite his goal of democratising electricity, Thomas Edison did not focus on selling it to poor people.”

Also, a Deputy Director and the Project Manager of the Nigerian Power Reform Programme at the Bureau of Public Enterprises, Mr. Amaechi Aloke, said the Nigerian government was in favour of a price increase. “There is no running away from it,” he said, although he suggested that any increase might have to be spread over a period of time. “The market today is still unstable.”

Mrs. Osibodu, who heads a Power Distribution company, appeared to agree with Mr. Aloke when she said that “we can’t increase the tariff overnight”. But she urged the government to create a regulatory asset bond to back its intervention in the power sector. Such an instrument, she explained, will give private investors confidence that the government is committed to fill in the liquidity gap currently limiting the sector’s ability to invest in better infrastructure.

Meanwhile, Lagos State’s Commissioner for Energy and Mineral Resources, Mr. Olawale Oluwo, who gave the keynote speech at the PwC Roundtable, said restructuring the power sector program has become inevitable while advocating for the complete privatisation and full divestment of government holdings in the sector.