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Why tariff increase won’t solve power sector woes

By Kingsley Jeremiah, Abuja
30 June 2020   |   4:27 am
The financial crisis rocking Nigeria’s electricity sector might not abate despite the move by the Federal Government to increase tariff next month. Privatised in 2013 to reverse epileptic power supply and survive without overdependence on government resources...

• Financial crisis looms as DisCos fail to remit N123.1b
• Agencies, parastatals yet to defray over N100b bill

The financial crisis rocking Nigeria’s electricity sector might not abate despite the move by the Federal Government to increase tariff next month. Privatised in 2013 to reverse epileptic power supply and survive without overdependence on government resources, the sector has been bogged down by a financial crisis 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 has been approved for borrowing in the last one year alone. This is coupled with the challenges posed by COVID-19 and the crash in the prices of commodities. Consequently, the government has been seeking means to exit payment of subsidy in both the petroleum and power sectors.

Last week, Minister of Power, Sale Mamman, insisted there was no going back on the planned increase, arguing that government was burdened by its spending on the sector. Many stakeholders, however, warned that a hike would only worsen the financial crisis in the sector.

The collection and remittance of electricity tariff have remained a challenge as the nation’s 11 distribution companies (DisCos) fail to meet the new minimum payment threshold set by the Nigerian Electricity Regulation Commission (NERC) as a prerequisite for a tariff increase.

In the first quarter of this year, the DisCos couldn’t remit about N123.1 billion of the N156.9 billion worth of energy supplied to them by the Nigerian Bulk Electricity Trading Company (NBET).

In January, while the total invoices of the energy consumed stood at N52.2 billion, the DisCos only remitted N14.9 billion, a paltry 29 per cent of the energy supplied to them for the month.

The problem was worse in February, as the DisCos only paid N13.1 billion of the N52.1 billion worth of energy received. Only 25 per cent of the remittance was met for the month under review.

March was pathetic as the companies remitted only 11 per cent, being N5.8 billion of the N52.6 billion worth of electricity supplied to them.As the revenue collector in the Nigerian Electricity Supply Industry (NESI), the NERC, in the wake of the attempt to increase electricity tariff and make the sector fund itself, set remittance thresholds. Some DisCos were asked to pay as low as nine per cent. The highest was 50 per cent. But most of the utility firms have not met up.

Though the NERC had planned to increase electricity tariff in April, the regulator dropped the bid as a result of the challenges posed by the COVID-19 pandemic, necessitating its postponement to July.

Sources at the distribution companies told The Guardian that attempting to collect 100 per cent of revenue is elusive, noting that even government ministries and agencies owe as much as N100 billion.

Last year, the Association of Nigerian Electricity Distributors (ANED) disclosed that the Federal Government’s tariff indebtedness to the DisCos was N1.728 trillion as at December 31,2019. Thus, the total debt owed the utilities by ministries, departments and agencies (MDAs), as at December 31, 2019, was N116.487 billion.

Amid the liquidity crisis, the NERC had said consumers owe at least N65.9 billion in energy debts in the first three months of 2019 alone. PricewaterhouseCoopers’s Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola, maintained that an increase in tariff would not tackle the sector’s financial calamity. He projected that the challenge would worsen, unless decisive attempt is made to address underlying issues hindering 100 per cent remittances to finance transmission and generation.

“Right now, there is a huge collection challenge across the DisCos. This has to be the main solution that needs to be looked into. An increase in tariff with the same problem of collection will result in more debt. The collection challenge is having a spiral effect across the industry. If DisCos can’t collect, NBET won’t be able to pay TCN and GenCos as well as gas suppliers. Cost reflective tariff is important,” Jaiyeola said.

He further decried the inability of government agencies to pay electricity bills and stressed the need to assist DisCos in revenue collection. A source at the DisCos, who pleaded anonymity, faulted the parameter used by NBET to arrive at its monthly invoices. According to him, the agency only issues invoices based on what is obtained in the tariff order without factoring in prevailing situations.

“NBET go by the book, which, in practice, is wrong. What they file is theoretical and meant for government because the money DisCos never collected they cannot give,” he said.

NBET and NERC are not on the same page on the billing system. Unless the agency, the regulator, as well as the Bureau of Public Enterprise align on the loopholes, the invoicing parameters would be elusive,” the source explained.

An energy lawyer, Madaki Ameh, insisted that increasing the current tariff would only amount to passing the inefficiencies of the DisCos to end-users, noting there was nothing like ‘cost reflective tariff’.

“I don’t believe in cost reflective tariff because cost is a relative term. Cost from whose perspective? Are those costs devoid of inefficiencies? I believe that at the current cost structure, the DisCos have more than enough money to run an efficient service if they are not padding their cost.

“They must not pass the cost of their inefficiencies to end-users because electricity is already well priced. DisCos need to look inward to address the inefficient structure that makes them feel the current cost is not reflective,” Ameh said.

Given the quality of service offered by the DisCos, Ameh believes consumers in Nigeria should only pay half of the current tariff. He urged Mamman not to be swayed by contrary arguments.

The costs being demanded are only to settle perky bills such as expatriate expenses, he said, adding that the sector does not need foreigners to survive. And if it does, the cost must not be passed to the end-users. Investors should hands off if they are unable to run the entities profitably, he maintained.

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