The Electricity Tariff Conundrum

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Minister of Power, Mr. Saleh Mamman

The perennial increase in tariff for electricity, which in many cases, is rarely available, has stirred debates across the country. Is it a case of putting the cart before the horse or does it simply centre around the never-ending argument as to which comes first between the egg and the chicken? Emmanuel Addeh takes a look at the issues

Will Nigeria ever exit this cycle of perennial electricity tariff increases without commensurate service? Will Nigerians ever enjoy stable and reliable power supply? Will this country in its lifetime ever catch up with the rest of the world? Will the customer ever be crowned king in the Nigerian Electricity Supply Industry (NESI)?

These questions fly in the air, given the state of the power industry and the seeming lack of capacity of the players, starting from the ministry of power, the Generation Companies (Gencos), the Transmission Company of Nigeria (TCN) and the Distribution Companies (Discos). And so, as it wont to happen, outrage has again greeted the sudden and covert approval of another increase in electricity rates by the Nigerian Electricity Regulatory Commission (NERC), a body, which it appears, now has the sole responsibility of hiking energy prices without recourse to the times, quality of service and backlash from its decisions.

Indeed, it would seem that despite a horde of functions bestowed on the commission under the law, including sanctioning industry players for infractions, which the industry does not have a shortage of, the only time NERC ever acts or is in the media, is when it feels it’s time to further add to the burden of Nigerians, who indeed are supplied darkness most times.

The unannounced and discreet January 1, 2021 increase in electricity tariff has again jolted citizens – artisans, technicians, manufacturers, and industrialists, who have described the action as ill-timed, insensitive, and a deliberate move to further impoverish an already poor entity, less than four months after a roughly 50 per cent increase. On September 1, 2020, NERC approved new rates for the Discos and again on December 30, said it gave the distribution companies the go-ahead to adjust tariff based on what it ascribed to changes in inflation rate, foreign exchange, among others.

Coming at a time negotiations were going on with organised labour, which had kicked against the previous September hike, it shocked many Nigerians how such a decision could be taken by NERC during a pandemic and recession, without the least attempt at consultations.

Many Nigerians believe, regardless of the excuses or pressure from Gencos, TCN and Discos, since there has been no remarkable improvement in power supply, NERC must resist their goading, especially given that majority of Nigerians have not been metered and are arbitrarily billed.

Although, the regulator hinges its actions on the Multi-Year Tariff Order (MYTO), which in 2015 was enacted to satisfy different interests, including that of the ordinary consumer, the framework appears to only take care of the Discos, NERC (who get their own cut from it by law) , TCN and the Gencos.

Despite the Service-based Tariff, recently introduced which seeks to ensure that bills are at par with quality of power supplied, many Nigerians say the scheme has failed, especially because NERC neither has the manpower nor the infrastructure to monitor how much power a household or cluster is supplied, thereby leaving them at the mercy of information they receive from the Discos. Questions remain over why, for instance, a transformer servicing a certain cluster will develop a fault for two months and yet unmetered residents of those areas are billed based on the existing stratification by hours, when indeed there was no supply? Or for metered customers, how if supply falls from 16 to 10 hours per day, they are still vended based on the 16 hours?

While NERC has always insisted that there would never be a good time for the review of rates, stating that it will ensure that Discos improve the quality of service, feedback from consumers indicate, however, that it is putting the cart before the horse.

“There will never be a good time to review the tariff. The interest here is to ensure that Nigerians are migrated to a threshold where there will be continuous improvement in the quality of service delivery,” NERC said in the heat of the last tariff review.

Although the SBT is expected to operate a progressive regime-which means that customers are charged based on quality of service, however, a quick check will show that the body hardly has the capacity to enforce this rule.

In announcing the latest increase in an order copied all the Distribution Companies (Discos), NERC said it was embarking on the hike considering the changes in inflation rate, foreign exchange, generation capacity, gas prices, among others, since the last review.

In the revised MYTO signed by the new Chairman of NERC, Mr. Sanusi Garba, and Commissioner, Legal, Licensing and Compliance, Dafe Akpeneye, on December 31, 2020, the memo indicated that the new tariff increase took effect on January 1, 2021.

However, in a statement clarifying the order marked NERC/225/2020, NERC explained that the commission had not approved a 50 per cent increase in electricity tariffs, but had only made an approval based on minor changes in the variables that go into the final charges paid by consumers.

“The commission states unequivocally that no approval has been granted for a 50 per cent tariff increase in the tariffs order for electricity distribution companies which took effect on January 1, 2021.

“On the contrary, the tariff for customers on service bands D & E (customers being served less than an average of 12 hours of supply per day over a period of one month) remains frozen and subsidised in line with the policy direction of the federal government.

“In compliance with the provisions of the Electric Power Sector Reform Act (EPRSA) on the nation’s tariff methodology for biannual minor review, the rates for service bands A, B, C, D and E have been adjusted by NGN2.00 to NGN4.00 per kW/hr to reflect the partial impact of inflation and movement in foreign exchange rates.

“The commission remains committed to protecting electricity consumers from failure to deliver on committed service levels under the service-based tariff regime,” it stated.

It noted that any customer that has been impacted by any rate increases beyond the above provision of the tariff order should report to the commission through its approved lines of communication with the public.

NERC added that the factors taken into consideration were: “14.9 per cent inflation rate rise in November 2020, foreign exchange of N379.4/$1 as of December 29, 2020, available generation capacity, US inflation rate of 1.22 per cent and the Capital Expenditure (CAPEX) of the power firms.”

“This order supersedes order /NERC/202B/2020 and shall take effect from 1st January 2021 and shall cease to have effect on the issuance of a new MYTO or an extraordinary tariff review order by NERC,” it said.

The commission noted that the order ,among other objectives, aimed to transit to Cost Reflective Tariffs (CRT) and introduction of service-based tariff regime with a view to improving customer service experience as well as ensuring financial sustainability of the electricity industry.

“Accordingly, this order is issued to reflect the impact of changes in the minor review variable as indicated in section 7 of this order and used relevant projections based on best available information in the determination of CRT and relevant tariff shortfalls for the year 2021,” it noted.

NERC said the revised tariff reflects the impact of changes in the projected minor review variables from January to December 2021, explaining that part of the objectives was to steer the market to gradual cost-reflective tariffs and activation of market contracts in line with the requirements of the transitional electricity market. But it added that the Discos shall be liable for service improvements in accordance with the commitments under the universal service obligations for providing electricity supply to customers.

It also said, where there is a failure to deliver on committed service level as measured over a 60-day period, rates payable by all the customers in the affected load cluster shall be retroactively adjusted in line with the quality of service delivered over the same period, upon verification by the commission.

But following the backlash over the increment, the federal government Thursday directed the immediate rollback of the new tariff increase, pending the conclusion of negotiations with organised labour over the matter.

In a statement, he personally signed, Minister of Power, Mr. Sale Mamman, noted the reversion to the old tariff would allow the resolution of all the issues surrounding the hike, but refuted reports that the tariffs were increased by 50 per cent.

Mamman, who said he had directed NERC to communicate the Discos to revert to the pre-January 1 rates, however contradicted himself, saying that the regulatory agency must be allowed to work without undue interference, even when his statement was a clear interference in the activities of NERC.

“It should be clear to all that the regulator must be allowed to perform its function without undue interference. The role of the government is not to set tariffs, it is to provide policy guidance and an enabling environment for the regulator to protect consumers and for investors to engage directly with consumers,” the minister said.

Speaking on the instruction to NERC, the regulator of the power sector, Mamman stated that till date, the federal government still subsidises electricity tariffs to the tune of 55 per cent for power consumers in band D and E and those on the lifeline band.

“To promote a constructive conclusion of the dialogue with the labour centres (through the Joint Ad-Hoc Committee), I have directed NERC to inform all Discos that they should revert to the tariffs that were applicable in December 2020.

“This will persist until the end of January 2021 (when the FGN/labour committee’s work will be concluded). This will allow for the outcome of all resolutions from the committee to be implemented together,” he stated.

He explained that the reported percentage increase had succeeded in confusing the public, insisting that government had been engaged in positive discussions about the electricity sector through a joint ad-hoc committee led by the Minister of State for Labour and Productivity, Dr. Chris Ngige, and co-chaired by the Minister of State for Power, Mr. Giddy Jedy-Agba.

But before the statement, which sought to placate Nigerians, several interest groups berated the federal government. In their separate reactions, they particularly picked holes in the timing of the tariffs considering the economic hardship and recession which had affected the purchasing power and wellbeing of Nigerians.

Speaking in separate interviews with THISDAY, former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, said the new pricing regime would lead to more hardship, particularly for Micro Small and Medium Enterprises (MSMEs).

He said: “It is unfortunate that electricity tariff had to be increased at this critical and difficult time. In my opinion, this is a very wrong timing of implementation of such increase.

“The country is currently in recession and experiencing attendant hardship by the citizenry. Recession is not a period to increase taxes, levies, tariffs and bills. This is because the ultimate effect will adversely affect households and consumers.”

In the same vein, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, told THISDAY that the hike would among other things, effect the general cost of goods and services and compound the pre-existing inflationary pressures.

Also, a former Commissioner for Finance, Prof. Uche Uwaleke, described as ill-timed the latest increase in electricity tariff by NERC.

Uwaleke argued that much as having in place a cost-reflective tariff was in the long-term interest of the power sector due to its potential to attract investors, implementing such a reform now would be counter-productive.

While the idea of tying the level of tariffs to the ability of Discos to meet certain service parameters, appears to be the right thing to do, as it will incentivise power distributors to improve service since it’s in their interest, many Nigerians feel that NERC must sit up in its monitoring function to ensure that Nigerians are not short-changed.