Suspense in power sector

• As FG adds one week of tariff suspension
• Investors fear delay will affect projected growth
• Govt may pay N26b shortfall for suspension

Stakeholders in the electricity sector, yesterday, expressed worry as the Federal Government suspended the increase in tariff by yet another one week. Following the face-off between the Federal Government and labour unions over increase in electricity tariff and petrol pump price, one of the short-term agreements reached was that the 11 electricity distribution companies () should suspend the Multi-Year Tariff Order (MYTO) 2020, which took effect on September 1 by two weeks.

According to resolutions at the resumed negotiation between government and labour on Sunday in Abuja, the additional one week extension of the suspension of the increment was to allow the National Electricity Regulatory Commission (NERC) and Electricity Distribution Companies (DisCos) work out and implement the decisions reached.

There had been attempts to increase the tariff, which currently enjoys Federal Government subsidy. Vice President Yemi Osinbajo had disclosed that over N1.7 trillion was spent on electricity subsidy. But government opted out of the payment recently, citing harsh economic situation caused by COVID-19.

Speaking on the resolutions, the Minister of Labour and Employment, Dr. Chris Ngige, said: “So, by next Monday, we hope that everything about this would have been completed and the new adjustments and reductions would be effected by Executive Order from NERC.”

In the resolution, government and labour agreed that priority would be given to the distribution of the first one million meters, being the first tranche of the six million meters pledged by government under its National Mass Metering Programme (NMMP).

It is also expected that NERC will compel DisCos to meet the metering needs of customers.

The meeting also agreed on immediate implementation of mandatory refund for any overbilling during system transition by the DisCos. To protect customers from changes in tariff during the interim period of review by the Joint Technical Committee, DisCos will be mandated to freeze customer band migration.

AMONG other resolutions, the parties also agreed on a mandatory monthly publication by NERC of allowed billings in naira for unmetered customers, to make regulations more effective.

For the second phase, the parties agreed that the ad hoc committee would work from October 12 to December 12 to ensure the resolution and implementation of all outstanding issues.

Some of those issues include reviewing the mechanism for gas pricing and performing audit of implementation of the service-based tariff across DisCos to ensure consumers are not overcharged or cheated in any form.

The committee will also ensure the accuracy of meters installation during the National Mass Metering Programme, among other outstanding issues.
With many outstanding issues yet to be resolved, the Federal Government has extended the lifespan of the committee by three months.

The negotiation committee is scheduled in the next 60-90 days to resolve other outstanding issues. The revised Terms of Reference (ToR) for the second phase includes review of inputs to the MYTO model and ensuring that assumptions and factors for the model are correct and accurate. This will also include clarifications on the reasons for variance in electricity tariff across DisCos.

The committee will visit all 11 DisCos and a review will be done on the implementation of the Service Based Tariff with a view to ensuring consumers are not overcharged, placed in wrong bands or not granted hours of electricity committed to by the DisCos.

The monitoring and evaluation mechanisms set up by NERC and the DISCOs would equally be reviewed. Also slated for review are the mechanisms for pricing the Domestic Supply Obligation (DSO) and the foreign exchange component(s).

The committee shall explore ways to accelerate investment and bring more players into the sector, drive investment and reduce costs for end-users. The committee will also investigate and recommend ways for the electricity sector to receive incentives that will reduce costs across the value chain that will benefit the end user.

But stakeholders, who spoke with The Guardian over the suspension extension, argued that continued interference would jeopardise projected growth and deter investment in the ailing sector.

This is as analysis by The Guardian showed the Federal Government could spend as much as N26 billion to offset the tariff suspension for three weeks. Statistics from Nigerian Bulk Electricity Trading Plc showed that monthly consumption had stood at about N52 billion from January to July this year. Under the reviewed tariff, government may be staking about N26 billion to pay the differential on the charges.

A leading investor in DisCos had told The Guardian government would have to bear the brunt, stressing that government interference in the sector would continue to deter investors.

The suspension was also an indication that the initial price hike did not follow due process, energy resource economist and former president of the Nigerian Association for Energy Economists (NAEE), Wunmi Iledare, stated.

Iledare said: “Pricing framework in a monopoly market must be service and investment reflected and apolitical.”Former chairman of NERC, Dr. Sam Amadi, said government’s action ridiculed NERC and created more risks and discredit for the market.

“Again, the tariff was hurriedly reviewed and inadequately communicated,” Amadi shared similar opinion with Iledare.He added: “There was absolutely lack of leadership in the manner the sector engaged consumers and the public on the tariff review.” He noted that the Federal Government did not do good risks analysis and impact assessment before embarking on the tariff increase. This development, according to him, has exposed the sector to ridicule and distrust before the investment community.