- Poor Nigerians, previously subsidised heavily affected by the new tariff
- Stakeholders divided over calls for reversal of power privatisation
Four months after the Federal Government and the Nigerian Electricity Regulatory Commission (NERC) quietly ordered the removal of subsidy on electricity and increased end-user tariffs, orders released, yesterday, by the regulator have created fresh concerns as poor Nigerians are now heavily burdened by tariff increases.
Yesterday, six power distribution companies (DisCos) got NERC approval to increase tariffs. According to a document issued on December 29, 2021, and signed by Sanusi Garba, NERC chairman, and Musiliu Oseni, vice chairman, the new tariff took effect from February 2022.
Port Harcourt Electricity Distribution Company (PHEDC), Jos Electricity Distribution Company (JEDC), Kano Electricity Distribution Company (KEDC), Kaduna Electricity Distribution Company (KEDC), Ikeja Electricity Distribution Company (IKEDC) and Ibadan Electricity Distribution Company (IBEDC) are the six DisCos that NERC approved.
NERC said some of the indices considered for the tariff increase include gas price, inflation, exchange rate, U.S. inflation rate, and available generation capacity. It added that these indices shall be reviewed every six months to update the tariffs with changes in the indices as applicable in line with the multi-year tariff order (MYTO).
While the new tariff has about two to five naira increase for consumers under band A to C, the previously frozen band D and E, which the Federal Government had claimed was subsidised to reduce the burden on poor Nigerians now has over N5 increase.
This is coming a few days after NERC openly defended DisCos, saying they have been faced with inflation, foreign exchange challenges and insecurity leading to the inability to collect revenue.
Some stakeholders yesterday lamented that the tariff adjustment confirms earlier rumours that NERC had quietly increased end-user tariff, a development they see as a deception for the regulator to have approved and implemented the tariff increment since February but just published it in May.
Industry players further lamented that despite the tariff hike, Nigerians would revert to power generating sets due to poor power supply.
In September 2020, President Muhammadu Buhari vigorously defended the increase in electricity tariff tagged Service-Based Tariff (SBT), stressing that it is the only gateway to improving power supply to the masses.
This SBT divided electricity consumers along hours of supply from band A to E. In the tariff band A, end-users must enjoy 20 hours of electricity supply daily; under band B, consumers must at least enjoy 16 hours of supply; 12 hours for those under band C, eight for those under band D and at least four hours daily for those under band E.
Sadly, the reality, according to most stakeholders, shows that statistics did not justify the principle as electricity generation capacity continued to drop while consumers were frequently thrown into darkness over the persistent collapse of the national grid.
Most industry players and consumer rights groups have described as an injustice the prevailing principle with some already asking government to cancel the 2013 privatisation, which sold assets of the public electricity market into private hands.
Still heavily dependent on borrowing, donor funding and government fund, the power sector, according to some consumer rights advocates, is living only on the sweat of end-users, who have had to make continuous monetary contributions under community development to acquire electricity transformers, poles, wires and other necessary services in privately-owned distribution companies.
To worsen the development, the national electricity grid in the space of eight years has collapsed more than 140 times despite over $1.6 billion investment pumped into the transmission segment of the sector from donor funds and borrowings from the World Bank and the African Development Bank.
While the Federal Government had spent about N1.7 trillion on the sector with plans to spend an additional $3 billion, Power Minister Abubakar Aliyu had earlier admitted on the backdrop of increased tariffs on electricity that the quality of service in terms of hours of supply, voltage, disputed/estimated bills, or having no access to electricity, remained poor.
Reacting to the development, former NERC chairman, Sam Amadi, said Nigeria would continue on electricity tariff hikes for a long time without improved supply, adding that there are many gaps in the electricity network, which have not been addressed.
“These frailties have been worsened by failures of the government. We have also seen a lax policy and regulatory environment. In spite of these failures, investors are demanding cost-reflective tariffs. The international financial institutions are also putting pressure on the government to remove subsidies in the sector, which arises because of revenue shortfalls,” Amadi said.
He noted that consumers may continue to bear the brunt of the compounding inefficiencies of the sector, adding that there is no indication for significant service improvement until the country “have a more efficient policy and regulatory environment and interventions.”
The pioneer Managing Director of the Nigerian Bulk Electricity Trading Company Plc (NBET), Rumundaka Wonodi, said while prevailing economic realities may cause tariffs to go up, it remained of serious concern that the increase is not delivering the service levels that are contemplated in service-based tariffs.
“Many of the clusters hardly experience the supply hours in whichever tariff band they have been placed. Imagine that in the past few months, the supply to the grid has been dismal, leading to reduced hours of supply to all bands of tariff consumers, even for band A, yet, the tariff remained the same.
“The DisCos rightly claim that they are not responsible for the recent decrease in supply, but, that is not for the consumers to pick up the bill because, at the same time, consumers have to make up with self-generation at a time diesel prices are through the roof,” Wonodi said.
According to him, even before the latest supply squeeze, many consumers in the tariff bands had pointed out that supply had not been consistent with their respective tariff bands.
While consumer groups are calling for a reversal of the privatisation, Wonodi noted that such calls would be counter-productive, rather what was needed was for the regulator to come down on non-performing players.
According to him, NERC and the Bureau of Public Enterprise (BPE) need to be empowered and encouraged to remove non-performing investors in each entity, either in the DisCos or generating companies (GenCos).
“Again, wholesome reversal of the privatisation will be expensive in terms of time and resources. Lastly, the call for reversal disrupts capital injection. Any successor company looking to raise either debt or equity will have a higher hurdle to jump when there is a consistent call for reversal of the privatisation,” Wonodi said.
Consumer advocate and convener of PowerUp Nigeria, Adetayo Adegbemle, noted: “I don’t blame all those calling for a reversal of the privatization, though I still don’t see it as the way forward,” Adegbemle said.
A professor of energy law at the Lagos State University (LASU), Yemi Oke, said tariff increase would never address the challenges in the power sector, adding that the fundamental issues would continue to bedevil the sector.
“You can continue to adjust tariff, at some point it will make no sense to patronise DisCos for power because the other options would become relatively cheaper. The last adjustment was premised on an improved power supply. That has not happened,” Oke said.
He said while the adjustment may make sense for commercial customers who use diesel, the household user may not cope, adding that industrial users may resort to embedded generation as no serious manufacturer would rely on DisCos.
A legal practitioner and consumer rights advocate, Kunle Olubiyo, said the reversal of the privatisation exercise remained the only leeway in the face of the continuous dismal performance of the power sector, adding that improving the sector may remain a mirage if the government sticks to the current investors.
According to him, consumers are being short change, adding that the sector has been fleecing customers mechanically through suspicious rogue meters.