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ELECTRICITY: Who will hike in tariff serve?

…Lai Omotola, energy expert answers

   •Says Nigerian banks can’t fund electricity industry, profers solution

By Ishola Balogun

Following a breakdown of negotiations between the leadership of the Senate and the Federal Government over the 45 per cent increase, the Senate a few days ago stopped the implementation of the new electricity tariffs expected to take off on February 1. In the same vein, a Federal High Court in Lagos also ruled that going ahead with the implementation would amount to contempt. This was as a result of public outcry that greeted the announcement of the increase. The Labour unions had held mass protests across the country recently to register their displeasure over the new electricity tariffs, shutting down major cities including Abuja for several hours. The argument of the indigenous companies managing the distribution of electricity was that the hike would guarantee steady supply of electricity. Previous hike in the past never translated into stable power.

•Lai Omotola
•Lai Omotola

As Nigerians continue to groan under darkness caused by the poor management of the indigenous companies, Mr. Lai Omotola Group Managing Director/Chief Executive of CFL Group of Companies, an expert in the industry said the new tariff regime will not produce desired result the way the Minister of Power, Works and Housing, Mr. Babatunde Fashola had painted it. According to him, the reasons really border on two main factors. Technical capacity of our indigenous companies as it were today and the financial capacity of the indigenous companies to bring together necessary infrastructure that can guarantee steady supply of electricity in the country.

“From the beginning, we said it was not enough for indigenous companies to just bring technical partners. It would have been better for indigenous companies to bring the technical partners who would also bring equity into that partnership. That is lacking today. The truth is that if the man brings equity, the difference is that he is not only a contractor to the indigenous companies, he is also an investor in the company. The indigenous companies will leverage on its technical competence and financial capacity. These were missing in this bid and that is why we are where we are today. We know power infrastructure development is probably the most financial intensive project in Nigeria. So, we need people with deep pocket.”

Could it be that the primary aim of the increase in tariff was to help the indigenous companies augment its finances? Omotola argued that the federal government indeed understood the situation, it chose to use the tariff increase as a strategy to help the indigenous companies get more funds. “The federal government decided to use another strategy. What is this strategy? The strategy is help the indigenous companies through the increase of electricity tariff. What is the tariff going to do? It will only achieve one objective. It will only help the indigenous companies service the loans at the expense of the consumers. When the loans are serviced, there could be a little of an opportunity for the banks to now raise adequate capital for expansion. Thatt lends credence to the twin problem of technical and financial challenges of the companies.

“If the minister is sure of himself, let him sign an indemnity or guarantee Nigerians that if the power is not stable in two years, he would resign because we have had enough talk. We have started counting again. Nothing will change tremendously in two years, even with electricity tariff hike. Our stake in this matter is that of transparency and logic,” he stressed.

Omotola who is also Publisher/Editor-in-Chief of InfraWatch Nigeria Limited berated the companies for not deploying technical expertise to curb several leakages in revenue collection.

“The ability to collect revenue is not there at all. To successfully collect revenues, they must deploy technology. If the truth must be told, there are a lot of people using illegal electricity. Some are tapping from underground armour cables; many are by-passing the pre-paid metres. The revenues that the power distribution companies are supposed to generate are not coming due to all these acts of sabotage. Another issue is that estimated billing which is the cash cow of the business. It is the juice of the business. Now, the federal government comes with a plan that the indigenous companies must meter everybody in two years. It should be other way round. The indigenous investors should have provided stable electricity supply first before increasing tariff. What we find now is that we are giving you two years to meter all consumers. If the sweetener is the estimated billing and the billing will rise by 45 percent, then the cash flow will increase from estimated billing. It is simple arithmetic.”

He lamented that the proposal of the National Electricity Regulatory Commission (NERC) on disputed bills will not work. NERC had proposed that once bills are disputed, the consumers should not pay the bills. Rather, they should pay what he paid last. But the consumer can write a letter, stating that a body of people will look into their complaints. Omotola said this will not work. “Ikeja Distribution Company, now Ikeja Electric, has over 450,000 customers. How many people will they be able to adjudicate on issues arising from estimated billings? Do they have capacity? You can see that it is not going to work.”

Proffering solution, Omotola stated that the huge challenge is the existing business model. “The challenge we have today is in the business model. Really, the business model is not in the Electricity Sector Reforms Act. It is the business model of these indigenous companies. What are the brands of these companies? How much can the brands attract globally in terms of investors? I will give an example. Dangote is known for cement and that was why it was easy for Dangote to set up cement factories in different African countries. He has already made template that he takes to every country and builds his factory with the same team. That is what he has been doing for the past 30 years. Is it not amazing that the same Dangote that is building $15 billion dollar refinery is not a player in the electricity industry in Nigeria? Not until recently.

“A proper business model should be deployed into the electricity industry and original players with established expertise and capacities in the electricity industry should be allowed in. The experts that have been in the electricity business generation over generation should be allowed to come in. An enabling environment should equally be created in a way that Nigerians will begin to see the future. Nigeria’s electricity markets cannot be compared to that of Ghana and South Africa. It is ridiculous to make that kind of comparison because our populations are different. The electricity market is enormous and attract huge profits. But the investors are not there.”

Explaining why the review of business model is necessary, he said: “Our banks can only finance between two and three years. That is the issue here. Between two and three years, our banks want to recoup thier funds. So, our banks are not suited to fund the electricity industry. The interest rate and tenor will not make it work. What we are suggesting is that the federal government should set up a finance development bank that is strictly for development projects. If our local banks will play any role, it will be in the area of providing working capital. They will just support these projects by working capital. This is a complete shift from what we have today because for those companies to survive, they need very low interest rate with very long-term loan tenor.

“Also, they need a robust capacity to handle these projects. Without being technical and ingenious, if you walk around streets anywhere in Nigeria, you will only see dilapidated transformers, overhead cables, old NEPA vehicles just repainted among others. These are signs that finances are very weak and this have not changed. Because when a new company comes in, it begins to pull down the old things and starts setting up new ones. You will see new transformers everywhere, new overhead cables among others. In fact, every person will see the impact. But you can only see our people unhappy and the indigenous companies in crisis. From all said so far, electricity tariff hike is not the solution.

 


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