How controversy stalled July 1 electricity tariff hike

Minister of Power Mamman Saleh and ANED’s spokesman, Sunday Oduntan
Minister of Power Mamman Saleh and ANED’s spokesman, Sunday Oduntan
  • Market to lose N1.1trn in 9 months

Prior to the planned increase in electricity tariff scheduled for July 1, 2020 by distribution companies, there was palpable tension across the country. However, the plan was suspended following disagreements that greeted the process. If the hike was enforced, electricity consumers would have seen an increase in their bills from 60 per cent to nearly 100 per cent.

Within the last three months, the Service Reflective Tariff increase has been suspended twice. The hike was first approved by the Nigerian Electricity Regulatory Commission (NERC) in March 2020 after considering applications of the 11 distribution companies (DisCos) for extraordinary review of the prevailing tariff structure, tagged Multi Year Tariff Order (MYTO) 2015.

The DisCos had insisted that the NERC should provide a Cost Reflective Tariff (CRT) towards boosting their performance and ensuring increased hours of electricity supply to consumers. Prior to this, MYTO 2015, which was enforced in February 2016, spiking tariff hike to over 60 per cent, had never been increased since then.

However, barely 24 hours to the increment date, the NERC issued an Order /198/2020, signed by its chairman, Prof James Momoh and the Commissioner for Legal, Licencing and Compliance, Dafe Akpeneye, suspending the hike.

The commission said that rather than April 1, the new date for the tariff hike should be on July 1, 2020. It cited global effects of COVID-19 and its impact on the average Nigerian as the reason for suspending the tariff hike till June 30 in the Nigerian Electricity Supply Industry (NESI).

The NERC stated, “There shall be no increase in tariff for end-use customers on April 1, 2020. This Order shall take effect from April 1, 2020 and shall cease to have effect on the issuance of a new Order by the NERC.”

Days to the July 1 tariff hike target, the DisCos began sensitising their customers of the 60 to 90 per cent increment level, pledging more commitment towards increased hours of electricity supply.

However, the Association of Nigerian Electricity Distributors (ANED), an umbrella body of DisCos, raised the alarm that the NERC was forcing them to stop mentioning that it approved the tariff.

A day after they raised this alarm, the leadership of the National Assembly was said to have met with operators of the power firms and the minister of power, seeking the immediate suspension of the planned tariff hike. That was the second time the tariff hike on MYTO 2015 was truncated in a space of three months – April 1 to July 1.

Citing the reason for the second suspension, the ANED had said the National Assembly raised concerns about the current financial hardships of their constituents and lapses in the internal workability of the plan within the sector.

“Based on the recommendation of the NASS leadership, the new Service Reflective Tariff regime would take effect from the first quarter of 2021. Members of the National Assembly are representatives of the people. Based on the feedback they have been getting from their constituents, there are difficult financial realities,’’ the association stated.

Electricity market to lose N1trn in 9 months  

Analysis of the suspended tariff structure shows that the electricity market will lose N1.1trillion in nine months.

The breakdown shows that the operators will lose N122bn every month. Given a 23,803bn kilowatt hour (kwh) energy allocation to the 11 DisCos from April to December 2020, the firms would have raked in a revenue of N1.094 trillion by selling the energy at an average rate of N46 per kwh.

According to its implementation timeline, after the tariff hike this year, the NERC had planned to approve another tariff hike from January to December 2022 by raising the average electricity cost from N46/kwh to N50.3/kwh.

The market had already lost N366b from the April 1 suspension and will lose another N734bn in this July suspension, up till December 2020.

The N1.1trn expected revenue is N336bn higher than what will be generated within these nine months under the prevailing electricity tariff, leaving a shortfall of N764bn.

The prevailing average Allowed Tariff (AT) for the DisCos is an average of N30.7/kwh with a projected 23,572 billion kwh of energy allocation.

FG spent N1.8trn in 6 years, may spend more

The Federal Government has already spent about N1.8trillion funding the power sector in loans within six years, since 2014. With this tariff suspension and a looming shortfall of N764bn, the government will have to raise more funds for power operators to sustain electricity supply at the present level.

Already, members of the National Assembly said they would look into this as they met with President Muhammadu Buhari recently, after ordering the suspension of the tariff hike.

The power sector is grappling with a N1.5trn deficit created since its privatisation in 2013, and would face N764bn more deficit if no intervention comes from the government, either as loan or grant.

A breakdown of the N1.8trn government funding shows that the Central Bank of Nigeria (CBN) gave N214bn loan from 2014, under the Nigerian Electricity Market Stabilisation Fund (NEMSF), from which the DisCos got N58bn.

Government began the N901.9bn Payment Assurance Guarantee (PAG) I fund for the Nigeria Bulk Electricity Trading Plc (NBET) in 2017 to have more fund to pay the generation companies (GenCos) for energy they supplied to the DisCos, which cost was not fully recovered from bills paid by electricity users. After that, the N600bn PAG II fund began in 2019 for similar purposes.

That is ongoing, but with the suspension of the electricity tariff hike, there may be the need for more funding of the private-sector-driven power firms by the government.

According to records, what have further worsened the liquidity crisis in the power sector are the operational losses at the DisCos’ end. The about 36 per cent of the projected N1trn revenue they were expecting from the tariff hike would have been lost to the Aggregate Technical, Collection and Commercial (ATC&C) losses.

These losses include energy theft by electricity consumers, problems with power networks, poor payment of electricity bills, and even the COVID-19.

During the lockdown period, the ANED said the DisCos lost an average of N500m every month due to heightened unpaid electricity bills.

“Customers were insisting on getting free electricity as mulled by the House of Representatives initially. Sadly, most Nigerians were not paying. In a particular DisCo, they were able to collect only two per cent,” said ANED’s spokesman, Sunday Oduntan.

Recently, the DisCos said they lost N30bn every month to energy theft because over 40 per cent of their customers didn’t pay bills. For instance, in a month in 2019, DisCos billed their unmetered customers N27.7bn but recovered only N5.2bn.

Oduntan said, “On average, each DisCo loses about N3bn every month.”

As electricity users know their fate on the price they may pay from January 2021, consumer advocates and experts have condemned the controversy trailing the planned tariff hike.

A professor of energy economics and former president of the Nigeria Association of Energy Economics (NAEE), Prof Omowunmi Iledare, said there was no legitimate tariff increase, adding, “Only the person (NERC) who puts it in place can suspend it. I am not sure NASS puts the tariff increase in place. Interestingly, I have not heard from the NERC, which has the power to suspend its tariff regulations.”

Iledare said the DisCos could have implemented the hike since the NERC did not stop them. “DisCos can suspend the tariff implementation on their own peril with NASS endorsement motion, as long as they can pay the bills of the GenCos and the Transmission Company of Nigeria (TCN).”

On his part, the president of the Nigeria Consumer Protection Network (NCPN), Kunle Kola Olubiyo, advised government to look into some factors causing the tariff hike, so as to mitigate public outcry when another hike comes into effect.

He said government should prioritise gas for power generation, adding, “This will bring down the tariffs as gas is a major feedstock accounting for 70 per cent of cost inputs. Gas pricing is believed to be over-priced, and by extension, electricity tariff becomes over-bloated.”

He also called on the DisCos to improve on their generation efficiency level, saying, “They should close the leakages and address the issue of corporate governance and operational transparency.”

The tariff hike process was rushed, said the executive director, Power Up Initiatives, Adetayo Adegbemle. “It would have been great to give the DisCcos what they have always wanted so as to stop their perennial complaints. However, consumers do not have the capability to pay that high price, taking into consideration the fact that the economy is in recession right now.

What is bad about it is the naked politics played by stakeholders, to the point of the National Assembly having to intervene. This is a bad precedence,” Adegbemle said.

But tariff hike should have been totally cancelled, according to the national secretary of the Network of Electricity Consumers Advocacy of Nigeria (NECAN), Uket Ekpo Ubonga.

“We don’t even want suspension; we want total cancellation. NERC’s quarterly reports from 2018 to 2019 stated that DisCos had not met their performance target, which means that they have failed. Do you reward failed performance with tariff increase? Ubonga queried.

“They are also not ready to meter all customers because estimated billing has become a low-hanging fruit for them,” he added.

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