Tariff Increase Raises Concern Over Investments, Sincerity of DISCOs

electricityFirms Give Reasons For Low Investments In Electricity Infrastructure<strong

WHEN the Federal Government initiated the nation’s power sector reform in 2005, the intention was to provide all Nigerians access to a reliable and affordable source of electricity.

Government wanted a reduction in the cost of doing business, through availability of electricity, attract investment in power sector, create an electricity market that is private sector driven and above all, facilitate economic development of the country.

Two years on, there has been no visible sign of improvement in power supply; neither has there been any reduction in the cost of doing business in the country.

This has compelled many Nigerians to compare the power sector reform with privatisation of the Telecoms sector, where the private sector operators invested massively to make telephone services available and affordable to all Nigerians.

Reports said Mobile Network Operators (MNOs) in Nigeria invested about N905.2b between 2013 and 2014 on base station (BTS) infrastructure, in their efforts to improve services nationwide.

Findings showed that it cost the MNOs about N30 million to build a base station, while Nigerian Communications Commission (NCC) said about 30,176 base stations were built between 2013 and 2014 by the operators.

A breakdown of the figure revealed that MTN, Globacom, Airtel and Etisalat built 12,557; 6,677; 6,186 and 4,756 base stations respectively in 2014.

To boost operations of the submarine fibre optic cable system, MainOne had already invested about $300m in the project in the last three years, with plans to double the investment in the sub-sector in the next few years.

In the same vein, Globacom invested $800m on its 9,800km submarine cable for Internet transmission, just as MTN had invested about $600m on its 14,530 km submarine cable system, to improve service for their ever-growing number of subscribers.

But in the power sector, operators are yet to make visible investment to improve power supply, in fulfilment of the desire of the protagonists of reform in that sector.

Everywhere, there are fallen electricity poles, tattered conductors, popularly known as cables, and obsolete transformers. These are visible distribution infrastructure, which the electricity companies especially the DISCOs have hitherto failed to invest in to improve power supply.

The implication is that even if the generation companies and transmission companies double their effort, consumers will still not enjoy steady power supply because of failure of the distribution companies to upgrade their network.

The only area they have made little investment is the metering of homes and the investment in that direction is informed by the need to improve their revenue collection, not to improve service.

Stakeholders said the increase in tariff couldn’t be justified, because the DISCOs have failed to meet the need of consumers in terms of regular electricity supply. They also accused the distribution companies of negligence and failure to invest in distribution network they inherited from the PHCN.

The chairman of Joint Action Committee, Electricity Consumers Consultative Forum, Mr. Ayodele Olaore, who condemned increase, said consumers have been helping the distribution companies to fix damaged poles and transformers, adding that in some areas, residents contribute money to change weak electricity conductors and other facilities.

“The DISCOs have poor response to emergencies. There are tilted and damaged poles everywhere. Some areas don’t have supply as we speak because of bad transformers. Most communities still provide poles, cables and transformers for their own use,” he said.

Others described the increase as a sign of insincerity and greed even as others simply allege conspiracy between the government and the DISCOs to rip off the people.

There are suggestions that the DISCOs should attain 100 per cent metering of homes and offices before tariff hike can even be contemplated. Many homes are still on estimation. With the increase, a household which hitherto paid N10,000 monthly estimated bill would be expected to pay N13,500 for consumers under Ikeja Electricity Distribution Company.

Even more painful is the fact that consumers on estimation hardly have electricity supply, as DISCOs do not feel the compulsion to maintain supply since the revenue will roll in whether services are rendered or not.

Investment by DISCOs in metres has reduced their Aggregate Technical and Collection (ATC&C) losses and their revenue collection capacity has improved. Many of them are raking over one billion naira from each of their distribution units.

Ikeja Electricity Distribution Company (IKEDC) told the BPE monitoring team recently in Lagos that revenue collection has improved by 100 per cent due to the deployment of smart pre-paid metres.

Specifically, the DISCO said its Oshodi business unit, as against the N602 million it collected, when it took over from PHCN, is now raking in about N1.211 billion every month.

But despite their increasing revenue from poor services, the companies have succeeded in their pressure for electricity tariff review.

The new tariff was announced by the government few days ago, despite opposition from stakeholders and National Assembly, making Nigerians to doubt the real intention of the power sector reform.

The Executive Director, Research and Advocacy, Association of Nigerian Electricity Distributors, Mr. Sunday Olurotimi Oduntan said there is no basis for comparison between power and Telecoms sector.

He said investment in Telecom sector involves only the erection of Mast, while investment in power sector cuts across the three value chain areas of generation, transmission and distribution.

Oduntan, who spoke with The Guardian during the week, said it is not possible to reposition the sector in two years after 50 years of neglect and rot.

He described as abnormal the ownership structure of the three-power value chain, noting that while the generation companies are privately owned, the middle layer in the chain, which is the transmission, is solely owned by the government, although under the management of a private concern.

“The difference between Power and Telecoms sector is very wide. The Obasanjo regime tried to privatise the power sector and it could not complete it. The three-value chain layers in power sector are: the generation, transmission and distribution. All of them are interdependent. For 50 years, they neglected the power sector. They only used it as a cash cow, and the rot of 50 years cannot be cleared in two years.

The ownership arrangement of the three value chain layers is abnormal. We have the generation side that is private, government owns the transmission, which is at the middle, although managed by a private concern and the distribution layer, which is also privately owned. Now the GENCOs and DISCOs have invested heavily and we are generating only between 3,000 and 4,800 MW and if we generate above that capacity, the transmission facility will collapse,” he said.

On customer satisfaction, he said there was need to raise electricity generation capacity beyond the present level, fix transmission infrastructure to carry power to the point of distribution, and above all, fix distribution network.

Commenting on investment by the distribution companies, Oduntan said though there has been huge investment, there is need for more investment by the companies.

He assured Nigerians of visible investment by the DISCOs now that new tariff has been approved.

“It will now be easy for us to approach the financial institutions for loans, because investment in power sector is capital intensive,” he said.

Giving reasons for low investment by the electricity companies, he said: “there has been risk of non cost-reflectivity, rapid changing rules and uncertainty of the future tariffs. The only fund available to support the industry is customer payments, which are paid at about 50 per cent of obligations.

“The DISCOs have committed millions of naira on investment. They have spent money in putting in place injection sub-stations, just like they have spent millions on the I.T. They have also spent a lot on metres.”

Under the new tariff, electricity consumers in Abuja, who currently pay N13.91 per kilowatt-hour, will witness an increase by N9.60. Consumers under EKO and Ikeja Electricity Distribution areas, who currently pay N12.87KWH and N13.61KWH respectively, will witness a N10 and N8 increase respectively in their energy charges.

Electricity consumers in Kaduna and Benin DISCOs, who currently pay N66.90KWH, will witness an increase of N11.05 and N9.26 respectively in their energy charges.

Public outcry has started trailing the new tariff. The Manufacturers Association of Nigeria (MAN) described it as unacceptable, even as it accused the electricity distribution companies of insincerity in their operations. Besides, it considered it as prejudice because of its previous court injunction against the increase.

“We are shocked at the action of Nigerian Electricity Regulatory Commission (NERC) and the distribution companies. We have a court injunction restraining them from any increase. We had prayed the court to ask NERC to revert to the previous Multi Year Tariff Order (MYTO). This amounts to subjudice. We are going to brief our lawyers to take it up,” said the president of MAN, Frank Udemba Jacobs.

According to him, manufacturers nationwide would resist the new tariff as it did previously.

Nigerian workers also rejected the new tariff and have called for the review of the power sector privatisation process, saying it has failed to achieve the desired objective.

The President of the Nigerian Labour Congress (NLC), Ayuba Wabba, in a communiqué after the meeting of National Working Committee of the Nigeria Labour Congress, described the increase as unacceptable and promised to mobilise the workers against it.



1 Comment
  • Maigari

    The blame lies squarely with the NERC. Right from the inception of the reforms the management of the NERC seems to have a very single tunnel-vision: Increase in tariffs is the panacea to all; the failures of NEPA. Well Nigerians have gone though umpteenth raise in tariff based on a spurious generation claim. Yes spurious because whatever may have been generated is mostly lost in transmission before it gets to the consumer yet the NERC insists that we must pay for the claimed and presumed generation. Thus the DISCOS have an active partner in price gouging against the Nigerian Consumer and they are called the National Electricity Regulatory Council.

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