The new tariffs will be justified if the services are improved

Consumers will pay about N1.52 trillion more for power supplied to them next year, going by the recent tariff approved by the Nigerian Electricity Regulatory Commission (NERC). While several groups are of the view that this increment should not stand until there is considerable improvement in power supply, the NERC seemed to have concluded that the tariff review has come to stay. Our position is that the electricity industry should be properly run with the right market tools. But we fear that the new rate increase may be another exercise in futility. After all, previous exercises have never really yielded good outcomes in terms of improved service delivery.

 In a recent regulatory circular, NERC approved a new electricity tariff for distribution companies (Discos) operating in Nigeria. It said the new tariff which is distinct to each Discos became effective from 1st July, 2019, meaning that consumers are already paying more for electricity supplied to them. In the circular, the NERC described the new tariff as “2016-2018 minor review of the Multi Year Tariff Order (MYTO) 2015 and minimum remittance order for the year 2019.”

Justifying the new electricity rates, NERC said it considered the actual changes in relevant macroeconomic variables and available generation capacity in approving the tariff, and that the review was to give the Discos cost efficient tariffs to operate with. It even stated that the review recognised the historical tariff deficits of the Discos which affected their bottom line, and developed a framework to manage future revenue shortfalls in the industry, including minimum market remittance requirement. This will account for differences between cost reflective tariffs and allowed tariffs in the settlement of invoices issued by the Nigerian Bulk Electricity Trading Plc (NBET) and Market Operations (MO) department of the Transmission Company of Nigeria (TCN).

While we subscribe to the argument that people and industries should pay for the power they consume, the pertinent question remains: Will this increment resolve the many problems associated with electricity supply in Nigeria? With power generation now down to circa 3500 megawatts (MW) and Discos reportedly unwilling to take more power to consumers, it would be instructive for the NERC to explain to power consumers in the country what has happened to the key performance indicators the government signed with the Discos when they took over the distribution assets in 2013.

To the extent that previous tariff increments did not result to better services neither were they measured for the efficiency they sought to imbue in the sector, we understand why many Nigerians are apprehensive. The electricity market is service delivered to consumers and its outcome or efficiency should not be difficult to measure. However, we believe the NERC has not done enough to properly account for the efficiency of the industry. The regulator has remained aloof in its task of stabilising the market. Instead of demanding for efficiency, it has rather prioritised tariff increment.

It is pertinent to point out that while the NERC has approved a new tariff for Discos, the number of hours a lot of Nigerians enjoy electricity may have declined with the low generation volumes to the grid. The Discos, according to TCN, have also declined to take more power from the grid to their customers, and we feel this should be the focus of the NERC and not tariff increment. Conscious of the need for the Discos to operate efficiently and with tariff that can guarantee this, we believe that it is only decent and expected of the NERC to also extend to Nigerians similar priority it has extended to the Discos, and ensure that the tariffs approved for them count for efficiency.