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Tariff review is clearly inevitable – LCCI

By Naomi Uzor

Director General, Lagos Chamber of Commerce and Industry, LCCI, Mr. Muda Yusuf, said: “The reality is that private investments in the privatized power sector have severe liquidity challenges.  Practically all assumptions that informed the investment in the first place have broken down.

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These are assumptions with respect to tariffs, exchange rate, interest rate etc. It has thus become impossible to operate the key elements of the power value chain as viable commercial entities.  This is the background to the apparent failure of the power sector privatisation.

“The current model of static tariffs in the face of escalating cost simply cannot work.  If the sector has to remain with the private sector, tariff review is clearly inevitable. This however does not diminish the fact that the private investors perhaps did not do proper due diligence before taking over the sector.

There were financial and technical capacity issues.  For the end users, if steady supply of power can be guaranteed, paying more for power is a sacrifice worth making.  It would still be cheaper than depending on diesel or petrol generators.  Besides, it would be better for the environment.

The truth is, it would be difficult to attract investors into the sector if the tariff issues are not fixed.  Of course it would not be popular, but it is inevitable.  The alternative is for the government to take it over and run it as a social service.  But the question is where will the money come from?”

We are not certain that the increase will result in improved supply- MAN

The Director General, Manufacturers Association of Nigeria, MAN,  Segun Ajayi, said : “The recent increase in electricity tariff is rather unfortunate, giving the circumstances private businesses are facing and the fact that there is no indication that, going by the enormity of the challenges confronting the privatized power sector, there would be commensurate improvements in quality and hours of supply.

It is generally known the annual per capital estimated billing put out by DisCos is far more than what is truly supplied. To the average Nigerian, the increase is even seen as stratospheric.

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“However, what we are witnessing is not unexpected and has been the constant agitation of the DisCos in the name of cost reflective tariff. They have maintained that the poor supply is majorly due to paucity of resources, which is a direct consequence of charging rates that do not cover their cost. Whereas it is also the opinion of some that it is principally a lack of capacity to manage the business and resulting from wrong business judgement/calculation or module from inception.

“So, for the average manufacturer, this is a bad news. Not so much in the sense of the increase, but because we are not certain that the increase will result in improved supply. For some, it may as well continue to be paying more for services not rendered, especially for those high demand users who are not metered.

“Generally speaking, except the increase in tariff is matched by improved supply, the multiplier effect will be higher cost of production and the resulting increase in prices of products; reduction in capacity utilization, uncompetitiveness and consequent plummeting profitability.

However, if the increase, which the NERC and the  DicCos have insisted is inevitable, translates to improved quality and supply of electricity, then the bitter pill would have achieved a healing effect.”

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