Oduntan: Appropriate Pricing Key to Delivering Stable Power Supply


In the wake of controversy trailing the recent announcement about review of the Multi-Year Tariff Order and the proposed cost-reflective tariff by the Nigerian Electricity Regulatory Commission, the Director, Research and Advocacy, Association of Nigerian Electricity Distributors (ANED), Mr. Sunday Oduntan, in an interview on ‘The Morning Show,’ on Arise Television, threw more light on the issues. Peter Uzoho presents the excerpts:

Your argument has been that the tariffs are not cost-reflective, not market-oriented. So as it is, it looks like the distribution companies (Discos) that you speak for have been able to have their way with the recent increase in electricity tariff?

Let me start by commending our regulator, the Nigerian Electricity Regulatory Commission (NERC) for the efforts they have been making in the last six months, to stabilise the power sector. A lot of issues are going on. But we have not really left Egypt, we are really at the port, even though we are at the seaport, just boarding the ship, and that journey is a long journey. The reform process started in this country as far back as 2001, up to the point of the law that was enacted in 2005.

Privatisation came in 2013. All these historical and all the shortfalls and problems are a very long journey. We are not even half way to that journey. What people want in this country is electricity, if possible, they want uninterrupted power supply. It is just like you want bread and that has to do with bakery that will produce bread. For the bakery to produce bread, there must be a flour mill to produce flour, and for that flour mill to produce flour, there must be a farmer that will grow wheat.

In all of this, money is involved, there is cost to it. So we should show understanding when it comes to the issue of cost. And in the case of electricity, there are some macroeconomic indices. For instance, the foreign exchange component of the business, like we use the US dollar in Nigeria to calculate forex. The last time a review was done in this sector was in 2015 and it took effect on February 1, 2016.

What the law says is that there should be minor review every six months, which is why I have commended NERC for coming out for the first time since 2016, to do what we should have done every six months from that February 2016. So there is no way you look at the foreign exchange for instance, as at first quarter of 2016, it is not the same as what we have today. You look at the lending rate, you look at the rate of inflation, all those ones have changed, and whether it goes up or down, there is supposed to be a review to put things in perspective and ensure that we have proper pricing on the product.

Even what people are talking about now, firstly, let me do some clarification, it was not a tariff increase. So there is no need for any hysteria about tariff increase. First, the regulator, NERC, is empowered by law to review tariff, to regulate the industry; and as at today, no tariff increase. What they are proposing is a slight increase that will occur in April 2020, and it is even planned to be a gradual thing. We will not have what should be the appropriate pricing of the product this year, what is planned is to see that by the end of 2021, there will be a way to ensure that appropriate things are done such that there will not be that huge shortfall.

When you are talking about efficiency, efficiency is also linked to pricing. You cannot be efficient in any business, even in bakery if there is no appropriate pricing. And I have said that before in this programme, that the woman who sells bread on Awolowo Way Road, Ikoyi, who buys from a bakery in Agege, maybe on credit but there is a price to it. If the price of bread is N80 from the bakery, why should the woman be selling that bread for N31.46 kobo? The moment the woman keeps on selling at N31.46 kobo, what it means is that the woman will not have nylon with the bread and flies will be flying around it. There is no way she can be efficient, and very soon the business will collapse. That is the same situation with the power sector.

People are already groaning under the huge cost that they have to pay and the standard of living here is quite expensive, and now the tariff hike?

Well, I think as Nigerians have to start facing the reality that if you really want something good you must be prepared to pay for what is good. We as Nigerians cannot expect electricity like in South Africa, in the United Kingdom while at the same time we don’t want to be paying. Even over there in Senegal, they pay. In Ghana, they pay more. And the bread analogy works because what I am telling you is that if the woman is taking bread at N80 per loaf and such a woman is forced by law to sell the same at N30 for instance, there is a shortfall of N50. You cannot get the bread after a while because first, there will not be efficiency, with time there will not be availability. So the issue of electricity is availability and efficiency.

People are not happy but I can see you now linking it with the reality in the country. Again, you cannot blame the private sector to which I belong for either the minimum wage, people’s ability to pay for certain things, I understand that, and we do understand the pain of our people. The only solution to that is for us as a country to at some point sit down and agree on those things that government should spend money on and those things that should be allowed to float like electricity, petrol. There is no point subsidising fuel. If I want to buy my fuel or I want to use three cars, why should it be a problem? So if it has to be N200 per litre, reality, what is the purchasing power of the person who is buying that? This is the kind of thing we should all look at.

We should not be emotional about it, we should look at it in terms of the reality on the ground. The question to be asked is: is Nigeria a rich country? I don’t think so, but even if we are not rich, are we even doing the right thing as a nation? What happened to our recurrent expenditure and capital expenditure? What happened to the cost of governance? What happened to the size of government? Where does the money go? How much do we spend on the National Assembly for instance?

But can we ignore the fact that there is no consumer confidence? So, how do we ensure that we are giving the customer the sort of confidence they need which they never had before?

I think we need to be more sensitive to the needs of our customers. I think we are not there yet but the discos that I represent and everybody, all stakeholders in the value chain are not efficient enough. Efficiency is very important as I have spoken about the link between efficiency and pricing. But even at that, I think there is the need for us to do more, and even when there is no light or when there is a problem, what I have seen in the past is, sometimes there is lack of communication or us taking our customers for granted. That is not right, that cannot be right.

So what we need to do is one, we need to improve our communication with our customers across board all over the country. We need to also deploy more technology because sometimes, the transformer at your house is faulty, if you are under Eko Disco, you will know almost real time. There is an equipment called SCADA, so far in this country now, Eko Disco has acquired one, very expensive, even the Transmission Company of Nigeria is still in the process of getting one. We need to have things like that to enable us know things and deal with things as they happen.

So, I agree 100 per cent that there is the need for more consumer confidence, consumer education; and like now, people have been talking about tariff increase in January 1. All those ones, we need to do more in terms of letting people be aware of what is going on. The piecemeal or gradual increment makes people to think that they increase tariff all the time. The other option would have been to say from day one (2013), this is the cost of production of this electricity, this is how much people should pay. But the truth of the matter is that for those who are on N18,000 per month, if you have 24-hour electricity and you are living in a 3-bedroom flat, and you have two or three fans, maybe one air conditioning system and iron, your monthly payment may be about N12,000. So if you are on N18,000 per month, how can you afford to pay N12,000? But should we say because some people are on N18,000 per month, we should now neglect the sector and not fix the appropriate price? So, what I am not talking about subsidy, but an option. I think it is for the government to think about the best way to deal with all these issues regarding those who cannot afford certain things.

And as you mention R1, R1 is residential customers who live in villages, rural areas, and I can give you one example. In Kano, there is a place called Bumpai. At the back of Bumpai there is a rail line, at the back of that rail line there are so many villages. Can you believe that they have more electricity supply because of the unique location they are than the people in that GRA called Bumpai? Bumpai too has meters, most of them, more than 90 per cent. Most of the people in those rural areas do not have meters, they can’t even afford to pay N500 in a month, yet those who also need this electricity can’t get it. That’s the world we have found ourselves.

But we are trying all our best now to ensure that one, there will be generation, better transmission and more synergy between us as distribution companies, transmission company and generation companies. We all need to just work together because at the end of the day, if we all work together, this year, no naming, blaming or claiming. All we need to do is for all of us to work together in the interest of the consumers, in the interest of the country and in the interest of our businesses.

Persons from the South-east are saying that the cost-reflective tariff that the government or the regulator has bought into, that there is a discrimination against them, that it looks like the South-east will end up paying more than the other parts of the country, that, this is another case of the marginalisation against the South-east?

First of all, let me talk about the issue of alleged marginalisation. We are distribution companies, so we are in Enugu, we cover the whole of South-east. Enugu Electricity Distribution Company covers the whole of South-east just like Port Harcourt Disco covers the whole of the South-south. So, there is nothing like Igbos or Yorubas or Kanuris paying more. The regulator that fixes what should be the price in all of these things have certain parameters they use. So, there is nothing like discrimination, there is nothing like ethnicity and you may also want to also ask the regulator, NERC for more clarity. But I am sure that there is nothing like discrimination against the South-east.

In October 2019, the regulator said all the Discos have violated Section 74 of the Electricity Sector Regulatory (EPSR) Act, and they had asked the Discos to give reasons why their licences should not be revoked within 60 days. Where are we on that?

Again, the regulator has power under the law, which empowers them to regulate the industry, to take certain action in accordance with the law. What they did was that they asked us to show cause, and we have shown cause. In the course of showing cause, they have seen reasons why certain things are the way they are, and I can assure you that a lot of those things, they have also considered while reviewing the tide. The issue of MDAs’ debt is one of them, the issue of generation cost is one of them. I won’t go to all those technicalities here, but I just want you to understand it.

But the truth of the matter is when the order was reeled out and some media organisations went out, saying they are going to take the licences, and all that, we chose not to say anything, because we knew that what they asked us to do was to show cause why the licence should not be revoked, and we have shown cause why those licences should not be revoked. Sixty days has passed, no licence has been revoked so far, which means that they understand, they now see why certain things are done in certain way. That was what I said when I was talking about bread. You cannot talk about efficiency without talking about the price.