No to electricity tariff increase

Electricity Pole.

The intense and justified desire of stakeholders to have uninterrupted electricity power recently received a shock from the Nigerian Electricity Regulatory Commission (NERC), the regulator of the power sector when its Acting Chief Executive, Tony Akah, was quoted to have told members of the Senate Committee on Privatisation that without an increase in electricity tariff or a subsidy from the government, Nigeria would not be able to get steady power supply. He attempted a justification of his position by employing the now old-fashioned arguments of destruction of gas pipelines, huge cost being sustained by power companies, foreign exchange scarcity and fall in the rate of the local currency, Naira, lack of cost-effective tariff or subsidy or incentives that would induce the power companies to commit more money to the sector.

Akah’s solutions include a hike in electricity tariff or provision of subsidy or incentives in the form of tax holidays. He equally proposed that cheap bonds should be provided for the power companies to prevent them from passing high electricity bills to consumers. In proposing subsidy as a solution, he was reported to have asserted that since the petroleum sector was still enjoying subsidy, it would not be out of place for the power sector to enjoy subsidy from the government. He crowned his obvious desperation to advocate and obtain tariff increase for the power operators with the point that “….in the absence of subsidy coming in, in the absence of other mechanism coming in, we (NERC) are bound under the law to provide a tariff that will recover cost of investments.” He was also certain that in the event of no increase in electricity tariff or provision of subsidy or incentives, he has no better ideas on how to make progress with the mandate of his Commission.

It is noteworthy that despite this advocacy on behalf of the private power companies, Senator Ben Murray-Bruce, chairman of the Senate Committee on Privatisation, was reported to have impressed on the NERC the salient fact that most workers in Nigeria have not had pay/wage increase in years; workers operate in the same economic environment as the power companies who want a 200 per cent increase in electricity tariff and also that several businesses in the country have been operating under the same conditions, but have not increase their prices.

Beyond this factual position, it is necessary to point out that the government have unduly indulged and supported the power companies since privatisation. Through the Central Bank of Nigeria (CBN), government first provided them the Power and Airline Intervention Fund operated through the Bank of Industry at a concessionary interest rate of seven per cent per annum. Many stakeholders questioned the rationale for such provision of the fund which balance as at end of December 2015, stood at N249.6 billion. The second intervention fund was N213 billion Nigeria Electricity Market Stabilisation Facility operated through the deposit money banks at a concessionary interest rate of 10 per cent per annum. The fund, a collaborative initiative of CBN, Ministry of Petroleum Resources and Power, the Nigerian Electricity Regulatory Commission and the Nigerian National Petroleum Corporation, was partly aimed at “addressing persistent liquidity challenges facing the power and gas sector, and fast-track the development of a viable and sustainable domestic energy market.”

It is rather unfortunate that these huge tax payers’ funds to the privately-owned power companies have failed to provide the much needed “viable and sustainable domestic energy” in the economy. All Nigerians have received are ‘no power’ and ‘endless excuses,’ now followed by the ‘threat’ that, except tax payers continue to make more funds available, power would remain elusive.

Clearly, the power companies that emerged from the privatisation exercise lack the capacity, in all ramifications, to achieve the objectives of privatising the assets. This situation throws up many questions. For instance, was due diligence conducted before reaching the decisions that produced the companies that won in the privatisation exercise? Did the country do its homework very well to ascertain the problems intended to be solved and was it convinced, beyond all reasonable doubts that the chosen power firms would provide the solutions? And how objective and transparent were the processes that brought about the bid winners. It is advisable that when next the government has the need to embark on serious projects of national interest, enough due diligence backed by non-controvertible practical evidences should be taken into consideration. Essentially, these call for good governance at all times.

Given the difficulties of these times, nothing can justifiably support a tariff hike in the power sector. Practicable ideas on how to revive the economy for sustainable growth are required. What the power companies must do as privately owned organisations is to access the CBN intervention funds or access the capital market for equity and/or bonds. Except their owners are running away from dilution of their shareholding, the Nigerian Capital Market will welcome them. Investment wisdom dictates that one per cent share holding in a performing company is far better than 100 per cent ownership of a non-performing business. The companies must also build up their capacity in human capital, equipment and technology resources.

As for the government, it is high time an integrated power mix was pursued. The country is in a position to tap from solar, wind, hydrocarbon resources alongside gas to bring light to Nigeria in significant quantity and quality levels. Besides, the government has the right to diligently find capable power companies across the globe and license them to get this electricity deficit stigma off the neck of Nigeria. It is also incumbent on government in its bid to improve the power situation, to pay attention to how the federating units in the country should be empowered to provide power within their areas of jurisdiction. The competition this will bring about will produce better services to the consumers.

Finally, regulators that seem to or indeed, lack ideas on possible ways forward for power availability, sustainability and affordability, should desist from threats and refrain from advocating against the people the law requires them not only to serve but to protect.

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  • William Norris

    Government is the problem. Right now the tarrif structure dictated andthen heavily subsidized by the FG. And the FG rarely pays its subsidy obligations to the various companies in the industry. This is no different from what goes on in the forex and fuel markets.

    Government controlled prices and subsidies lead to scarcity.

    It’s a good thing that you advocate for other energy sources. Indeed let Nigerians go for it. Buy and install solar systems or whatever else. Continue using personal generators with diesel or petrol. I’m sure it’s cheaper than the current prices being charged by the electricity companies.

    Go ahead and use the alternative systems…..what are Nigerians waiting for?

    • LagLon

      the level of dishonesty in the system is baffling.
      every player has a massive incentive to make up numbers or pump up the losses and effectively share it…
      simplification and deregulation is the ONLY way to go.

  • real

    good article and very good for pointing out the madness of NERC. Their sole desire is to enrich the power sector owner at the expense of Nigerian’s. This while not providing the product of which they are looting Nigeria. Nigeria is one of the only country that would continue to allow for estimated bill of a product that can be easily measured and billed properly. There are two problem with the power sector and they are. one, the current power sector value chain and model is wrong and allow for the blame game. it is time we open the sector to investors that can do all aspect of providing electricity. each electricity company should generate, transmit and distribute the electricity. This would remove the blame game. Second, no disco should be allow to estimate bill it client and they should not be allow to increase traffic until they have immediately metered all of their consumer. metering allow fro proper billing and measuring of electricity distributed. This would generate revenue, which would begin to improve the funding of the sector. Nigerian’s should resist any government loans or increased traffic until we get each consumer metered. This excuse of lack of gas can be easily solve and would be solve If gas producers get paid and paid on time.