Electricity Tariff Increase: Matters Arising

By Nigeria Electricity Hub

That Power generation and supply continue to pose challenges to the economic and social lives of Nigerians is no longer news. It is equally disheartening to note that despite decades of successive administrations efforts to tackle the many challenges

that have so far bedeviled that sector, have more or less yielded little or no result. Despite this huge drawback, the Nigeria citizens continue to suffer the effect of epileptic power supply and are forced to pay for electricity that they hardly consume.

Industry close watchers in the power sector observe that undoubtedly, electricity billing and collections will go into overdrive, and with possible increase in tariffs and Discos employing increasingly aggressive collection practices, there is the potential for controversy like as was experienced when the MYTO tariff was sought to be increased in 2016.

According to them when the Multi Year Tariff Order (MYTO) was first introduced, it provided the electricity tariffs for a five-year path over a 15 year period. It allowed for biannual minor reviews for changes in exchange rates and gas prices (subsequently including change in generation capacity), as well as inflation. Figures from the Nigerian Bureau of Statistics (NBS) indicates that the MYTO of 2015 was arrived at with gas prices of $2.44/mmbtu which now hovers above $3, inflation rate of 13 percent that has

since risen to 18.55 percent. Foreign exchange rate which was based on $1/198 but a dollar now hovers about $1/N500 and this has constrained the importation of maintenance parts for power assets by electricity generation companies and the price of feedstock.

Experts disclosed that under the MYTO agreement, it also allowed for major reviews every five years for all other assumptions, which include the cost of capital, CAPEX and OPEX. Since it has been introduced, electricity tariffs have been on an upward trajectory” .

They are however are worried that increase in tariff does not translate to efficient power supply as all the sector value chain need to work together to achieve the desired result. As if to buttress the point of experts, Nigeria Electricity Regulatory Commission (NERC) in a recent statement explained that the planned increase in electricity tariff was not a guarantee for steady power supply.

Usman Abba Arabi, head of public affairs was reported to have said the commission was empowered under the EPSR Act to provide a cost reflective tariff. He noted that the planned review of tariff would be done at an appropriate time to ensure that the electricity market remains operational.

According to him, “The NERC has never stated that only an increase in electricity tariff would guarantee a steady power supply in the country. The commission’s position had been that a review was necessary due to the economic recession in the country.” A cursory look at challenges in power sector Stakeholders and industry analysts in their various summations observe that Nigeria’s power sector has an N1trillion liquidity gap due to huge debts by electricity generation

and distribution companies and end users. Usman Abba Arabi, head of public affairs NERC opines that the poor remittance by electricity distribution companies (DISCO) and the multiple restraining court orders were constraints to the commission.

He added that the orders also limit the Nigerian Bulk Electricity Trading Company from enforcing the market rules on Discos and

other operators. Arabi explained that the other factors affecting the electricity supply in the country include the inflation rate of 18.55 per cent, the exchange rate of the naira per dollar and the current electricity generation of 4000MW.

On his part, Bukola Saraki, while speaking at Interactive Dialogue/ Workshop on the Nigerian Power sector organised by the National Assembly last week observed that Generating companies (GENCOS) bought generating units without a clear assurance of source of gas to fire plants and government had no active roadmap for delivery of a gas market infrastructure to make this happen. Saraki is pained that despite this obvious lapses, gas companies and the International oil companies (IOCs) were exporting the country’s gas to create gas markets elsewhere in Europe and Asia while Businesses and citizens in Nigeria languished in darkness as a result of incessant, persistent and erratic power outages.

“In the face of all these our people continued to be called upon to bear inexplicable bills estimated beyond rationale service value. “While privatization is a right policy recipe to pursue in order to put in place a power sector that can galvanize our economy, we forgot that the participation of the private sector is not an end in itself. We neglected that unless this is done, observing transparency, competition, transaction integrity we might end up with a sector worse than the past”. Saraki said.

Treading the path of efficiency Analysts are quick to note that the assumptions on which electricity tariffs were fixed including foreign exchange, inflation and gas prices have long been rendered obsolete. Ayodele Oni, an energy expert opine that the foregoing being the case, a clear path to recovery in the power sector, is an increase in tariffs.

He however, argue whether consumers should be expected to bear the burden of sudden increases, especially when there has been no improvement in power supply and when increase in tariffs would not guarantee (at least in the immediate) improved power supply. Oni is of the opinion that should tariffs under MYTO be increased to an economically sustainable level (for the Discos), without any improvement in the quality and volume of supply, it is likely that the end result will lead to a greater loss of revenue as more people decide to default on payment of their bills.

Chijioke Mama, an energy analyst opines that the future of the power sector maybe gloomier saying that majority of the challenges facing that sector are complex and deep rooted. “We may see a few additional capacity added to the grid, especially from hydro power sources. But that can easily be eroded by the very poor state of transmission infrastructure. According to him, “Administrative and regulatory efforts to salvage the sector might see some progress (behind-the-scene) but there may not be much tangible progress for consumers to see.

Gas-to-power may continue to stall, as we cannot wish militancy, vandalisation and Niger Delta unrest away. Recession and foreign currency risks may slow the pace of off-grid solar which otherwise will provide a respite for residential and commercial solar power. However beyond 2017 we may see some good news from on-grid solar. Ayodele Oni says 2017 may be the year when the Federal Government will need to reconsider privatisation as the cure to Nigeria’s power woes. Worse, the plants that generated power produced a measly 3.9 Mw of power. This is problematic when you consider that the distribution networks themselves are facing high ATC losses.

“Meeting this gap through additional investment will be difficult as the industry is currently unattractive to potential investors or even lenders, and increases in tariffs are likely to be incredibly unpopular as consumers have already experienced price hikes. Short of real government intervention it is likely to be a hard year for the power sector”. He said.

Source: BusinessDay