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Power sector and the politics of tariff reversal

The Nigerian power sector has been enmeshed in different controversies, sabotage and financial challenges for decades. Efforts by successive governments to bring sanity to the sector have proved abortive. In this report, OLATUNDE DODONDAWA examines the issue of tariff controversies and the way forward for the sector.

 

A ruling by a Federal High Court in Lagos has reversed a tariff increase imposed by the National Electricity Regulatory Commission (NERC). The NERC had effected an arbitrary increase in the tariff on July 1, 2016.

A lawyer, Toluwani Adebiyi filed the suit against the NERC and obtained judgment stopping the tariff hike.

Justice Mohammed Idris, in his ruling, stated that NERC flouted due procedure in effecting its increase and ordered the agency to reverse the tariff increase.

The court had ruled that “NERC is hereby directed to reverse to the status quo and the commission is hereby restrained from further increasing electricity tariff except it complies strictly with the relevant provisions of the EPSRA.”

His judgment was based on on sections 31, 32 and 76 of the Electricity Power Sector Reform Act (EPSRA) 2005 which empowered the NERC to regulate tariff, ensure Nigerians are adequately supplied and that the licensees (operators) also collect cost-reflective tariff.

Section 32 (c-d) stated that “The NERC is to ensure that adequate supply of electricity to consumers and that prices (tariff) charged (by operators) are fair to consumers. To ensure that the tariff is sufficient to allow the licensees to finance their activities and allow for reasonable earnings for efficient operation.”

Prior to the increase in electricity tariff, an average Nigerian was paying N7.50 per kilowatt excluding the monthly charges of N750 irrespective of whether there was power supply or not.

However, based on the Multi-Year Tariff Order (II), the new 10-year tariff regime (2016-2026) approved by the National Electricity Regulatory Commission (NERC), which took effect from February 1, 2016, has generated debates and reactions amongst Nigerians.

An average of 40 per cent increase was added to the energy charges covering residential, commercial, industrial, special and street lighting classes.  For instance, the new tariff for Abuja residential consumers was increased by N9.60kwh in their energy charges, with that of Eko and Ikeja electricity distribution consumers witnessed N10kwh and N8kwh increase in their energy charges, respectively.

 

The controversies of prepaid metering among stakeholders

Across the electricity value chain, there are the generation companies (Gencos), Transmission Company and the Distribution Companies (Discos). Among the three stakeholders, it is the Discos that interface with the power consumers and they are the ones that receive the backlash and take the blame for poor power supply.

Investigation by the Nigerian Tribune however revealed that many customers that have paid for such meters and those that are ready to pay are being denied such meters. Most culpable in this act is the Ikeja Disco where many communities have decided to display banners that except the Ikeja Disco provides prepaid meters, they will stop paying their bills.

According to a source within the power industry, most Discos preferred estimated billing system because it gives room to force consumers to pay for what they did not consume.

According to him, “most of the new owners are not ready to meter customers. They prefer the old system of estimated billing because that is where they get their revenue from. What they simply do is to charge the unmetered customers to pay for energy theft and energy that are lost.

“In a lay man’s language, if a Disco supplied N100,000 worth of energy to a particular community which must have been captured by the meter installed on a transformer, and the ones with prepaid meters account for N40,000. The remaining N60,000 will be shared among the customers with no meters irrespective of whether they used energy for the period or not.

“They do not want to take risk for their own inefficiencies. They are supposed to invest in infrastructure and ensure that no energy is lost from one point to the other. They are just interested in generating revenue.”

However, the Chief Executive Officer, Eko Electricity Distribution Company, Mr Oladele Amoda, assured customers within its network that his company is committed and will continue to meter the customers until all customers are meters. According to him, “we are committed to meter all our customers within five years (2013-2018) after take over.  We have invested over N55 billion in the procurement of smart meters and maximum demand meters, in order to eliminate estimated billing in the next two years.”

A source within Ikeja Electric confirmed to Nigerian Tribune that the company is facing challenges in allocation and distribution of prepaid meter deliveries due to the economic situation in the country. “But we are taking responsibility for that and we are ensuring that customers are paying closed to what they consumed. I mean those customers on estimated billing system.

“We are maximising what we get from the Gencos and ensuring that all our customers are supplied adequately based on our allocation from the grid,” he said.

 

The way forward

According to the acting Chairman of NERC, Dr Anthony Akah, “This judgment in our view is a setback to the progress made so far in the electricity sector. Therefore, we will challenge this decision. We have instructed our lawyer to appeal. Consequently, the commission has filed for stay of execution and a notice of appeal of the judgment.

“We understand that private power production and distribution are relatively new in Nigeria and that development such as this court ruling must be seen in that context as the laws begin to face judicial tests of interpretations.

“We believe that ultimately, everybody and all institutions will come to better understanding of the values of the choice we have made as a nation to privatise the power sector.

“It (judgment) represents the reversal of the commercial foundation upon which contracts for gas, hydro, coal and solar feedstock for the production of electricity have been predicated.

“The ultimate destination of a commercialised electricity market is to achieve stability and adequacy in the supply of electricity to satisfy the yearning of Nigerians for adequate, safe and reliable electricity supply, the judgment would set back the sector’s achievement of these.”

The Executive Director of Association of Electricity Distributors (ANED), Mr Sunday Oduntan,  balleged that NERC knew that the 2015 tariff was inadequate to attract investment in the sector because it was not absolutely cost reflective.

Oduntan also said Nigerians who used electricity without paying, or steal power from their networks through meter by-pass; vandalism of assets; and beating up of operator’s staff were not fair to the Discos and sectors. He explained that the Discos can only distribute available electricity to their consumers.

“Nigerians have an option between light and darkness. If we need darkness, let us continue the way we are going now. Let’s continue to say they should reverse the tariff, let’s continue to steal energy, let’s continue to vandalise gas pipelines, let’s continue not paying our bills.

“If we continue, darkness looms, if we can change we can increase the power supply. We can progress gradually from incremental to stable to uninterrupted power supply, but we can’t achieve this without the cooperation of everybody. Inappropriate tariff leads to shortfall, shortfall leads to funding gap and funding gap leads to inefficiency, because we will not be able to give appropriate service.

“Part of the agreement at pre-privatisation was that appropriate tariff will be given. The problem we have had ever since is that two and half years down the line the government did not fulfil their pledge. They did not keep their side of the agreement and that has affected us.

“On the November 1 2013, we were supposed to have an average of N24 per kilowatt hour across board and all we had was N11 per kilowatt hour. Over that period till now, you are talking of a huge funding gap.

“Today the funding gap is over N300 billion and that shortfall somebody needs to pay for it. What we are saying in essence is that we need to ensure that the product is appropriately priced. The MYTO 2.0, 2.1 and 2.1 amended, NERC was just playing to the gallery.

“They knew they got it wrong when they started and everything they tried to do to get it right did not measure up, the funding gap continued. It was only the one they did on December 22, 2015 that measured up. But we couldn’t understand why they said it should commence on February 1, after they have left office.

“That also left January with another huge gap. We are asking that the product should be appropriately priced and it is the job of NERC to ensure that. We all know how much it cost to produce electricity. So, the shortfall keeps growing in the industry,” he said.