By Michael Eboh
The strongest indication yet that electricity tariff may go up came from Ikeja Electric Plc (Distribution Company, DISCO) which said, in February, that consumers will contend with 50 per cent hike beginning from April 1 (eight days away).
The DISCO disclosed this in a letter to the Nigerian Electricity Regulatory Commission (NERC), dated February 12, 2020, on its performance and improvement plan and application for extraordinary tariff review of the Multi-Year Tariff Order 2015.
NERC, in its December 2019 Minor Review of Multi Year Tariff Order 2015 and Minimum Remittance Order for the Year 2020 for the 11 DISCOs, had said, on January 4, that consumers would start to pay more for electricity from April 1, 2020.
But following public outcry that greeted the announcement, the House of Representatives asked the Federal Government to suspend the planned tariff upward review.
“The objective of the extraordinary tariff review of MYTO 2015 is to ensure Ikeja Electric adjusts its tariff in line with the commission’s directive that current average allowed DISCO tariffs shall be grossed up by 50 per cent from April 1, 2020 in order to meet the tariff shortfall funding target for 2020 by the Federal Government of Nigeria,” Ikeja Electric said in the letter.
It added that it had designed the tariffs based on the MYTO tariff model contained in a document, titled ‘Ikeja DISCO Tariff Model January 2020’, which the commission shared with it.
The DISCO said, “In this application, we intend to create a new tariff class, called bilateral; a class that is being created for customers that IE has signed Power Purchase Agreement with under a willing-buyer-willing-seller arrangement.
“In order to provide an efficient and reliable service to customers in this tariff class, cost-reflective tariffs are required to cover the cost of service delivery.”
Ikeja Electric Plc said the 50 per cent tariff increase was expected to raise the average tariff from the current level of N27.30 per kilowatt-hour to N40.95 per kilowatt-hour.
The implication of tariff hike by DISCOs across the country is that Nigerians will be paying more for darkness.
In December 2015 when the Nigerian Electricity Regulatory Commission, NERC, with the backing of the Federal Government, carried out the last upward review of electricity tariff, it told Nigerians that the hike would bring about stable electricity supply and finally resolve the problems in the country’s power sector.
Specifically, then-Minister of Power, Works and Housing, Mr. Babatunde Fashola, urged Nigerians to comply with the upward review and ensure that they paid their bills, noting that the electricity sector would record considering improvement thereafter.
Also, the Chairman/Chief Executive Officer of the NERC at that time, Dr. Sam Amadi, declared that tariff increase would help achieve a smooth meter roll-out as almost every house would be metered.
He stated that increased tariff would ensure more hours of power supply and reset the electricity market, thus making the sector more efficient and bringing about increased quantities while creating a market whereby customers would be satisfied with what they are paying for.
Previous tariff review
Up until 2016, NERC had, at various times, introduced Meter Maintenance Fee and Fixed Electricity Charges ranging from between N750 to N800 per customer, under the claim that the charges were critical for the growth of the industry.
Prior to the 2015 hike, the commission had undertaken a review in 2012 which increased tariff to N22.62 per kilowatt hour of electricity.
Tariff was also reviewed upward to N23.75 per kilowatt hour in 2014, N26.50 in 2015, before the latest review, January 2020, which sought to hike tariff to as high as N49.80 per kilowatt hour of electricity.
Paying heavily for darkness
Fast forward to 2020, a little over four years after the last hike in electricity tariff, reports from across the country showed that power supply has worsened from what it was in 2015 and rot has eaten deeper into the sector.
Majority of electricity consumers are still at war with various electricity distribution companies, DISCOs, for meters which the DISCOs has, somehow, made a scarce commodity while inefficiency in the electricity sector has hit an all-time high.
This shows that the various increases in tariff has not brought about any meaningful improvement in power supply.
Data obtained from the Ministry of Power revealed that, by December 2015, electricity supply stood at an average of 5,000 megawatts daily.
Today, however, Nigeria is battling with 3,500 megawatts while most households don’t enjoy up to eight hours of electricity daily.
Inefficiency is recorded across all the value chain of the electricity sector and Nigerians appear to be paying heavily for darkness.
No major investments have been made in the sector by electricity generation companies, GENCOs, and distribution companies, DISCOs, and, despite the privatization of the sector, the Federal Government is still making heavy investments there.
DISCOs hold back sector
Stakeholders interviewed by Sunday Vanguard were unanimous in their view that the biggest problem with the power industry is the electricity distribution companies who, unfortunately, are the ones constantly asking for an increase in electricity tariff.
Specifically, Executive Secretary of Centre for Social Justice, Dr. Eze Onyekpere, said the country needs a cost-reflective tariff, noting, however, that the hike in electricity tariff would not solve problems in the sector.
From their performance since privatization, Onyekpere accused the DISCOs of lacking the technical, managerial and financial capacity to turn around and add value to the investments that they met on ground, noting that the concerns of the distribution companies only centred on collecting money which, he said, they were unable to manage properly.
He advised the Federal Government to revoke the licences of the DISCOs or concession the companies to investors with the financial and technical capacity to turn around the sub-sector.
He said, “Inasmuch as we need a cost-reflective tariff, I do not believe the hike in electricity tariff is going to solve problems in the industry because we are not discussing investments in new generating capacity, neither are we discussing about improving the capacity of DISCOs to distribute electricity. “We are also not talking about the capacity of the transmission sub-sector to wheel electricity to where it is needed.
“I do not think the hike in tariff is the answer to the challenges facing the sector. It is much more fundamental, because some of them need to be pulled out of the programme, in terms of being asked to go, since they do not have the managerial and technical capacity.
“The DISCOs, again, should be put up for investors who would come in and put money. If you do not want to take them out, ask them to hold on a little bit so that investors can come in and work with them.
“It is either they do not have the money or they have it and are mismanaging it. They cannot give ordinary meter; they tell you stories. Even when you pay for meter, it takes them six months to give you.
“They are clearly the most degenerate set of managers I have ever witnessed in any sector. Yes, we need a cost-reflective tariff, but that would not solve the problem. We would keep going the way we are going if we do not do every other thing right.”
Also speaking, spokesperson for the Young Progressives Party, YPP, Comrade Martins Egbeola, described the hike in tariff as insensitivity on the part of government.
He said, “For the benefit of Nigerians who may have forgotten, this same government was responsible for increasing electricity tariff about three times in the last four years and the latest increase only goes to show the insensitivity of a government that only pays lip service about making life better for Nigerians.”
To Bode Adefolu, an electrical/renewable energy expert, “the current DISCOs harbour power yet receive incentives from the Federal Government, with scarcity of prepaid meters to consumers, are proposing power tariff hike across the land while consumers bear the brunt without mercy.
Adefolu went on, “Consumers continue to be at the receiving end as there is no incentive/bonus available to compensate for the hike in tariff, hence, more pains are created for the citizenry who pay for power that is not delivered to him, I mean, estimated consumers or will government pay for this as well?
“Isn’t it time for Nigeria to make power readily available to her citizens through energy mix and stop paying lip service this year 2020 so that the whole world will not leave us behind?”
In his own submission, Executive Vice President, International Institute for Petroleum, Energy, Law and Policy, IIPELP, Centre for Energy Economics, Abuja, Professor Wumi Iledare, disclosed that the problems confronting the power sector are more of the lack of full understanding of the fundamentals of the electric market structure, conduct and performance metrics.
He said, “Interestingly and rightly so, the symptoms of that misunderstanding is manifested mostly by the tariff issues that are currently in display. It is, therefore, not if it is right or wrong or whether higher tariff is justified or not.
“What is as stake is whether the process of increasing or decreasing tariff follows the rule of law without any evidence of regulatory capture?
“The responsibility to approve or disapprove tariff is vested on NERC and as long as due process is followed, so be it. The caveat, however, is following due process as to the Act.
“For example, do the DISCOs asking for increase in tariff merit their request based on efficiency and effectiveness criteria?
“Have they made investment over that last reviewed period to expand capacity and improved deliverability? Is there any improvement in energy access and affordability?
“Electricity is not a public good. You need adequate tariff to guarantee adequate earning power of investment.
“I understand the fallacy of the past in terms of the tariff mechanism in place. But are the expectations met to kick-start the review process?
“Let us tell ourselves the truth. Buy and sell mentality has no play in this business. Neither would economic populism rekindle the power sector.
“And the prebendalism mentality in governance will not help matters, when it comes to appropriate tariff to signal the readiness of the sector to increase access to power and sustain power.
“You cannot continue to do the same thing and get different results. It is time to revisit the Electric Power Act and follow the fundamentals of energy economics.”
Fashola, NERC, TCN battle DISCOs
Confirming the inadequacies of the distribution sub-sector, in July 2018, in the face of their call for increase in tariff, then-Minister of Power, Works and Housing, Fashola, had accused DISCOs of sabotaging the country’s economy by their refusal to carry out government’s directives aimed at resolving key constraints in the sector’s performance.
Fashola blamed the poor performance of the electricity industry on lapses caused by DISCOs, noting that they had deliberately refused to provide meters to customers, in addition to other acts which were negatively stunting the growth of the generation and distribution sectors, such as load rejection.
In addition, Fashola, in August 2018, said, “Those who know and who genuinely desire to solve problems in the industry do not need to be told that the most pressing challenge of the power sector today lies at the distribution end.
“Amongst the challenges in this sector of the value chain, the most urgent are distribution of available energy to consumers, and there is unused energy in the region of 2,000 megawatts in this category.”
Key among the shenanigans of the DISCOs, it was disclosed, is their refusal to meter their customers, so that they can continue to bill their customers indiscriminately.
Meanwhile, NERC had wielded the big stick a few weeks ago when it placed a limit on the amount electricity distribution companies can charge their customers as estimated billings.
This has forced down the revenue profile of DISCOs as consumers who they used to bill between N15, 000 and N25, 000 per month, now get between N1, 500 and N3, 000 for the same period.
Revocation of DISCOs’ licences
In addition, NERC, on October 8, 2019, threatened to revoke the licenses of eight of the 11 DISCOs in the country, citing the DISCOs consistent failure to meet their obligated remittance to the industry.
However, it was surprising when, in January 2020, three months after threatening to revoke their licenses, NERC went ahead to effect an increase in tariff.
On his part, Managing Director of the Transmission Company of Nigeria, Mr. Usman Mohammed, has consistently berated DISCOs who he accused of frustrating the growth of the electricity sector.
In an engagement with journalists last December in Abuja, Mohammed admitted that mistakes were made in the privatization of the distribution companies, noting that most of the DISCOs lacked the requisite capital to make any significant investments to boost electricity distribution.
He said, “I believe that we have made mistakes in the way the privatization of DISCOs was conducted, and we need to correct those mistakes.
“I believe the best way to correct that mistakes is through the recapitalization of DISCOs. We should recapitalize them so that they can have enough capacity to distribute the electricity that is produced, as clearly, electricity cannot be stored.
“No matter what your generation capacity is, if what the DISCOs can take is little, that is what you would be compelled to generate and transmit. That is how it is.
“We believe that we can educate Nigerians on what we need to do for the power sector, so that we solve the problems of the DISCOs, which are the elephant in the room that is stopping Nigeria from expanding its potential in electricity. We need to solve that problem.
Going by this knowledge and accusations by the authorities in charge of regulating the power sector, a former President of the Trade Union Congress, TUC, Comrade Peter Esele, accused government of double standards in the proposed increase of electricity tariff.
Esele, who is also former President of the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, wondered why the Federal Government was still pampering and spending trillions of naira on the electricity sector despite its claims of privatising the sector.
He disclosed that electricity distribution and generating companies had consistently failed to meet their obligations as stipulated in the contract documents signed during the privatisation exercise and wondered why government should even consider increasing tariff.
He said, “The first thing is that the power sector was privatised and government is spending trillions of naira every year on the sector.
“I do not know why government is spending such huge money. None of the electricity distribution companies or electricity generating companies has met any of their obligations from the privatisation documents that they signed.
“Now you are going again to increase tariff. In 18 months, Egypt added 10,000 megawatts to their power generation.
“As I am talking today, we are still dragging 3,000 megawatts, 4,000 megawatts and 5,000 megawatts.
“If we go by the way we are generating power, it would still take another 50 years before we can have uninterrupted power supply.
“My take in all of these is that they are increasing tariff, but we are not seeing a corresponding increase in power supply in the country.
In my place, I know how much I spend every now and then buying diesel.
“To make things worse, in my area for instance, we are not charged like every other houses, we are told that they want to make sure we have regular power supply, so we have to pay higher than the normal. As I am talking to you, there is no improvement in power supply in my area despite their claims.”
To this end, Esele advised the Federal Government to hold the electricity generation and distribution companies responsible for the inefficiencies in the power sector, and should, therefore, jettison the planned increase in electricity tariff.”