Electricity Supply: Nigerians applaud N10.5b sanctions on Discos, differ on tariff hike

• Task NERC On Proper Implementation Of The Sanctions
• Increase In Tariff Won’t Solve Power Challenges In Nigeria – Ajibola
• Deal With Losses First, Adenikinju Advises FG

The looming increase in electricity tariff in the country despite worsening supply and service delivery, as well as, the rising liquidity crisis has divided stakeholders who are worried about the harsh economic realities for homes and industries and the fate of the nation’s despondent power sector.

This comes as doubts becloud the implications of the N10.5 billion sanctions imposed on the Distribution Companies over arbitrary billing of more than eight million customers who have no pre-paid metres.

With over N1.7 trillion to be paid as subsidy this year and another N2.6 trillion in gas and legacy debt to generation companies, the Federal Government has started retracting seven months after cancelling the Service Based Tariff regime introduced by the former administration of Muhammadu Buhari.

The implication is that Nigerians will now be left to pay double of their current electricity bills going by the 2024 Multi-Year Tariff Order if released by Nigerian Electricity Regulatory Commission (NERC).

Amid the food crisis in the country and a minimum wage of N30, 000 as well as soaring prices of diesel, premium motor spirit and aviation fuel, Nigeria’s yearly inflation rate has already moved  to a 28-year high as the rate stands at 29.9 per cent in January when compared with the 28.9 per cent in December and above market forecasts of 29.5 per cent.

The power sector players have also been unable to meet the threshold of supplying at least 5,000 megawatts of electricity or improving/meeting their Aggregate Technical and Commercial loss of the sector, which remains above 50 per cent.

With the exchange rate now about N1,490/$ and inflation at almost 30 per cent, NERC has increased tariff by almost 100 per cent across different bands. But electricity supply and metering has been going from bad to worse.

The foreign exchange rate used in determining the 2015 tariff was N198.97/$; N383.80/$ was used in 2020 while in 2022, it was N441.78/$.

The inflation used in the 2015 MYTO was 8.3 per cent; 12 per cent was used in 2020 while16.97 per cent was in 2022.

In the looming tariff hike, consumers under Eko Electricity Distribution Company are to pay between N125 and N71 per kilowatt hour. In Enugu Electricity Distribution Company (EEDC), which covers all the Southeast states, the real cost reflective tariff is between N147 and N96 per kilowatt depending on the tariff plan. In Benin Electricity Distribution Plc, consumers are to pay between N137 and N100 for every kilowatt hour.

While electricity generation now hovers around 3,000 megawatts, dropping by about 1,500WM it was last year, over 20 of the country’s generation plants are performing abysmally below their capacity.

At the same time, the grid is collapsing repeatedly despite over $7 billion loan under previous administration to fix it. With this situation, most manufacturers and industrial zones are leaving the market with about eight per cent residential customers and a meagre 20 per cent for industrial operations.

To make matters worse, most companies are either closing down or leaving the country.

As of the last count, the power sector indebtedness to Deposit Money Banks (DMBs) stands at N836.08 billion as the sector owes the Central Bank of Nigeria (CBN) about N1.3 trillion in a series of interventions.

Managing Director, Mainstream Energy Solutions Limited, which operates most of the country’s electricity dams, Lamu Audu, said government waited for too long before taking decisive actions on the DisCos, saying this development worsened liquidity crisis in the sector.

While noting that subsidies for electricity won’t be sustainable, Audu said full liberalisation of sector is the country’s only leeway.

“The problem today is that the large industrial consumers of power are off the grid, and therefore, denying the sector of needed revenue. If they can come back to the grid and pay a higher tariff, the smaller and low income consumers can be subsidised by them. They cannot come back now because of poor services as the TCN and DisCos do not match demand quality with supply,” Audu said.

He noted that if the situation is turned around, gas pricing and supply will be a thing of the past, because money would be available to settle their bills.

President of the Nigerian Economic Society (NES), Prof. Adeola Adenikinju, said reducing losses in the power sector is much more than immediately removing electricity subsidy, adding that the socio-economic developments in the economy do not support government to release all handles of the economy at the same time.

“The exchange rate is now a floating rate, leading to soaring prices. Electricity also has a lot of effect on prices. Removing the subsidy at this time is not good advice both on economic and social points of view.

“We just have to see how losses in the system can be minimised, get new actors across the value chain and securitise the subsidy. At this time, agriculture and food security, electricity supply and social intervention to support the purchasing power of the poor and vulnerable should be prioritised,” Adenikinju said.

He feared that the sanction on DisCos over arbitrary billing of customers on estimated bills would be passed to the market.

He called for more punitive actions that would not be passed on to the consumers, possibly withdrawal of their licences, freezing of payment of dividends to the owners and salary increment to management staff, otherwise the N10.5 billion would be passed on to the consumers through another estimated billing.

Managing Partner at Kreston Pedabo, Ajibade Fashina, stated the worsening electricity supply in the country is of primary concern for both the general public and businesses as many Nigerians are experiencing frequent power outages and unreliable electricity supply, which hinders daily activities and economic growth.

Noting that tariff would double if the government removes the subsidy, Fashina said the decision would lead to increased costs for consumers but could also help address the financial sustainability of the electricity industry.

According to him, NERC sanctioning DisCos N10.5 billion over estimated billing is a step towards improving transparency and accountability in the sector, stressing that the key will be in the effective implementation of the sanctions to bring about positive change and fair treatment for consumers.

Former President, Chartered Institute of Bankers of Nigeria (CIBN) and Professor of Economics at Babcock University, Prof. Segun Aji, said most Nigerians and businesses are reeling under the yoke of price increases for public utilities amid declining quality of services.

“I am not sure the consumers would resist an increase in tariff payable on electricity supply because it is very likely to still be cheaper than other sources of energy. Unfortunately, experience keeps showing that the higher the tariff, the worse the services. Based on past experience, I am not sure the proposed hike in tariff, under the aegis of subsidy removal, will achieve anything,” Ajibola says

He maintained that removing the subsidy would only mean visiting frustration on hapless and helpless soft targets, stressing that the debate over what constitutes subsidy remains unresolved.

“Is the cost of generating, transmitting and distributing electricity just high or a fallout of economic inefficiencies? If all these issues are not harmonised under a well articulated Energy Policy for the country, electricity subsidy removal will remain a recurring decimal in the country till thy kingdom come,” the professor said.

While noting that the sanction on the DisCos by NERC was a good move, he however said the development may not put an end to the malaise, stressing that estimated billing is another form of economic rent – getting paid for doing nothing.

Ajibola called for more serious steps to provide pre-paid metres for both residential and commercial customers.

Lawyer and Executive Coordinator, NEPA WAHALA NG, a power sector consumer awareness and protection initiative, Emeka Ojoko, expressed concern over the suffering of the masses despite the justification for increase in electricity tariff.

Under a government which is running a series of bloated portfolio, Ojoko said the masses need to ensure that the savings from electricity subsidy would be utilised for their benefit and not siphoned into private pockets.

“Our leaders are living large while most Nigerians have been thrust below the poverty line. I must state, however, that there will never be a good time for halting the subsidy. Government and its officials should assure the people of their commitment to proper administration of subsidy savings by demonstrating a willingness to make the same sacrifices they are asking the people to make,” Ojoko said.

He insisted that it is unclear how the implementation of government sanctions on the DisCos would be monitored by NERC without real-time feedback from customers, alleging that the DisCos routinely lie to NERC.

Ojoko accused the DisCos of migrating customers from lower tariff bands to higher bands without concomitant increment in supply availability, stressing that NERC accepts the DisCos’ data about supply availability without confirming from customers if it was accurate.

Electricity stakeholder, Adetayo Adegbemle said electricity supply is going bad because gas suppliers are holding back in making further supplies to GenCos, who have been unable to pay for the gas supplied already.

Stressing on the liquidity problem, Adegbemle said apart from removal of Subsidy, one major important way of raising funds is for the government and its Ministries, Departments and Agencies (MDAs) to pay up their debts.

Electricity market analyst, Lanre Elatuyi, said with or without subsidy, there is no hope in sight in terms of electricity supply, as the average energy off-take from the DisCos this year is barely 4000MW.

Elatuyi said: “With the government’s decision on subsidy and given the economic realities in the country, it will be difficult for Nigerians to pay a cost reflective tariff with no improvement in electricity supply.

“Payment apathy will increase, energy theft may increase and liquidity issues may be compounded. The people are barely surviving and families can’t even afford food and medicines. It will be hard to pay a higher tariff now at a time when the cost of living has skyrocketed and electricity supply is still poor,” he said.