Coronavirus puts flawed electricity tariff hike to test
• GenCos threaten suit over delay
• DisCos, govt, discuss poor services, supply cost
• Senate urges Buhari to bear cost of deferred hike
• Operators deny lobbying NASS, putting sector in debt
Nigeria’s electricity supply industry faces yet another regulatory summersault, as the National Assembly, on Monday, toppled plans to increase cost of electricity supply by as much as 50 per cent.
This came as senators yesterday vowed to compel the executive arm of government to bear the impact of planned hike in electricity tariff, if eventually deferred to next year.
In the same vein, the nation’s power generation companies (GenCos) yesterday in Abuja said they would consider meeting the Federal Government at the court of Arbitration if planned electricity tariff increase is not implemented today (July 1).
Reacting to intervention by the National Assembly, which deferred the tariff increase, Executive Secretary of the Association of Power Generation Companies (APGC), Joy Ogaji, said government must increase the tariff today, (Wednesday, July 1, 2020) or GenCos would either collect their outstanding fees or head to court.
Ogaji also said that the operators would declare a force majeure and down tools.
“We are sick and tired of this back-and-forth. We are totally in support of the service reflective tariff as path to viability and sustainability. If government does not increase the tariff tomorrow (today), it’s either we are paid all our outstanding or we meet at Arbitration. If anyone wants to show favour, not at the expense of GenCos,” she said.
Ogaji added that the GenCos were obligated to generate electricity for Nigeria, and in turn receive 100 per cent payment of their monthly market invoice as was agreed in the (PPA).
She disclosed that, while GenCos engaged in a massive capacity recovery, they have been constantly paid less than 100 per cent of their invoice monthly.
“ From available data, as recent as April 2020, DisCos remittance was as low as eight per cent. In context, an eight per cent remittance leads to a 92 per cent reduction in remittance to GenCos.
‘‘Six years after the privatisation, GenCos’ Available Generation Capacity (AGC) has been exceeded. The implication of this is that GenCos have kept to their industry agreement with the Bureau of Public Enterprises (BPE) and the market.’’
On the contrary, representatives of electricity distribution companies (DisCos) had maintained that they would support suspension of the planned hike only if government would bear the differences in current tariff and what was considered as appropriate.
Speaking on the issue before the Senate Press Corps yesterday, Chairman Senate Committee on power, Gabriel Suswam said: “Nigerians were heavily burdened because of COVID-19. The economy has contracted by 3.2 percent; that’s a lot. So, it makes it difficult for you and me to attend to some of our social problems.”
He expressed the hope that the executive would agree, even though it would come at a cost.
President of the Senate, Ahmad Lawan, Speaker of the House of Representatives, Rt. Hon. Femi Gbajabiamila and other principal officers of the two Chambers had met at the National Assembly with chief executives of electricity regulatory body and DISCOs across the country.
The National Assembly leaders were emphatic that the timing of the planned hike was wrong, even though they had no objection to cost-reflective tariffs to attract the much-needed investments.
In the course of the meeting, the DISCOs also admitted that they were not well prepared for the planned hike in tariffs; even though they desired the increase.
The meeting therefore, agreed to defer the planned hike until first quarter of next year, while the leadership of the National Assembly promised to meet with President Muhammadu Buhari on the matter.
Lawan said: “The agreement was that there was not going to be any increase in tariffs on July 1. While we are in agreement here that there is no question on justification for increase, the time is simply not right and appropriate measures need to be put in place.”
DisCos and leadership of NASS are being accused of working to delay the take off of the tariff. Owners of the companies reportedly lobbied lawmakers to delay the plan.
Though NASS only deferred the tariff increase to first quarter of 2021, providing just a temporary relief for consumers, a lot of electricity consumers and civil society groups have expressed concerns, especially given the sorry state of the industry and its impacts on economic development and standard of living.
The industry has experienced many regulatory flops, which might continue to undermine the objective of bridging the huge electricity gap despite privatisation.
The current development is coming barely three months after the nation shelved an earlier plan to implement tariff review.
Being the second failed attempt in the last three months, stakeholders are beginning to express deep concern, especially as the sector continues to speak from both sides of the month despite huge liquidity and investment apathy.
They are also worried about a purported service-reflective tariff, which could oust the masses and prioritize well-to-do Nigerians in provision of electricity, though as much as 93 million Nigerians (about 55 per cent) still lack access to electricity.
With over four different groups or committees attempting to regulate the sector, the stakeholders are also worried over incessant interferences in the industry, stressing that the move would only worsen the precarious state of the nation’s power sector.
Though the Nigerian Electricity Regulatory Commission (NERC) was empowered by Parliament through the Electric Power Sector Reform Act of 2005 to serve as an independent body for technical and economic regulation of the electricity industry, the persistent interfe0rence in the sector is seen as part of the failure of the body to bark and bite.
The sole regulator has been accused of being responsible for policy summersaults and gross mismanagement of customer confidence as well as creating investment apathy.
Last year, NERC moved to fully implement a Multi-Year Tariff Order (MYTO) designed in 2015 and the Minimum Remittance Order for the Year 2019, the tariff system, which, if implemented periodically as designed, would have addressed the accumulated increase and reduce impact of the proposed tariff hike on consumers.
The commission, with headquarters in Abuja and zonal offices in the six geopolitical regions, had conducted public hearing on the proposed increase, but defied disagreements to announce that implementation of the MYTO would take effect on April 1 this year. It later deferred the implementation to July 1, following the outbreak of Coronavirus.
Seeing that the Minister of Power, Sale Mamman, had insisted before NASS members that there was no going back on the increase, as government was burdened by huge spending on the sector, the distribution companies backed the move with massive media campaign, including advertorials in national dailies to inform their customers of the new tariff plan.
But few days to the increase, NERC reportedly back-pedaled, distancing itself and the Federal Government from the tariff hike before NASS.
Recall that the DisCos are currently challenging the power of the regulator in court. The 11 utility companies, which serve as revenue collectors in the sector, have been severally criticised as being the weakest link in the sector as well as not remitting revenue accurately.
Privatised in 2013 to reverse epileptic power supply situation, the sector has been troubled by financial crises involving over N4 trillion.
The Federal Government had spent about N2 trillion to subsidise electricity consumption in the last five years, but current economic realities are bad. Over N10.8 trillion loan has been approved in the last one year alone. This is coupled with the challenges posed by COVID-19 and crash in prices of commodities.
Consequently, government has been seeking means to exit payment of subsidy in both petroleum and power sectors.
Since the move to increase the tariff was announced, stakeholders in the sector have increased agitation against shoddy performance of the power sector, especially in respect of poor service delivery, considering that the majority of consumers are not metered despite introduction of Meter Asset Providers (MAPs) scheme, while others raised concern on need to save the market with cost-reflective tariff plan.
An associate professor of Energy Law at the University of Lagos, Yemi Oke, told The Guardian that the timing of the tariff debate was ill-conceived, insensitive and seemingly desperate, stressing that consumers should have right to adjust, opt out or determine what level of electricity consumption they could afford through proper and honest metering.
He said that the country, as far as the power sector is concerned, left “leprosy to cure ringworm” as the problem in the sector remained unresolved.
“Those issues that make tariffs increment desirable by DisCos are still there. Issues that make consumers resist further increase in tariffs are still there. Those fundamental issues that drag the power sector down in Nigeria have remained potent.”
An energy lawyer, Madaki Ameh, did not see any justification to increase tariffs and asked the general public to rise up against the attempt, which he described as “fraudulent.”
Ameh said: “There was a comprehensive review of the tariff issue and a number of town hall meetings were held across the country, where tariff increases were roundly rejected by consumers. At the end of that exercise, NERC issued guidelines rejecting the request of DisCos to review tariffs to the so-called ‘cost-reflective’ levels. So, what has changed between April 1 and now? What happened to all those townhall meetings? Were they just for show? What is so urgent about the tariff increase now, especially as there has been no meaningful improvement in service delivery by the DisCos?
While the DisCos were accused of trying to get the government heavily indebted to the sector so as to cripple its control of the industry, knowing that ministries and agencies currently owe the utility companies over N100 billion, as revenue shortfall hits N1.2 trillion, spokesperson of the DisCos, Sunday Oduntan, denied the allegations.
He also denied that the DisCos did lobby NASS to halt the tariff increase, adding that the companies were ready to effect the tariff review until NASS convinced them to defer the decision.
Oduntan stated that executives of the utility companies, where government own 40 per cent share and represented at the board were in Abuja, courtesy of the Central Bank of Nigeria (CBN) before being invited by the lawmakers.
“We are very prepared, but we are mindful of the challenges faced by Nigerians. Timing is very important, but the regulator chooses the timing and the mode, including the actual level of tariff,” he said.