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Electricity tariffs hike for private investors

By Editorial Board
20 September 2020   |   4:09 am
As Labour and civil society groups brace for a nationwide strike action against the arbitrary hike in petrol and electricity tariffs, Nigeria’s leader, under whose administration the people are burdened with these increases should do the needful ...

electricity tariff

As Labour and civil society groups brace for a nationwide strike action against the arbitrary hike in petrol and electricity tariffs, Nigeria’s leader, under whose administration the people are burdened with these increases should do the needful by authorising the operators and regulators to be customer-centric in their deals. 

It is needless to allow the industrial actions to paralyse the already battered economy. Government should therefore consider reversing the increases to save the country from avoidable shock.

The stage appears set for an industrial showdown. While the Trade Union Congress (TUC) has issued a seven-day ultimatum to the Federal Government to reverse the price hike, the Nigeria Labour Congress (NLC), has also issued a two-week ultimatum to the same Federal Government to reverse its decision on the hikes or face civil unrest nationwide. The congress handed down the warning at its Central Working Committee in Abuja.

Different stakeholders have also expressed disgust and resentment at the insensitive hike. The Manufacturers Association of Nigeria (MAN) rejected the tariff hike. The group said the increase is coming at a time that manufacturing was groaning because of deep injuries inflicted on the sector by the prevailing harsh operating environment, the increasing burden of taxes, and self-generated electricity.

The Acting Director-General of MAN, Ambrose Oruche, said most of MAN-member companies were classified in the ‘D’ categorisation (D1, D2 and D3), meaning ‘Industrial Consumers’ where tariff is the highest. The leadership of the Organised Private Sector in Nigeria (OPSN), in a reaction, said various projections for generation capacities for different years were made but not attained, yet tariff kept increasing.

What is worrisome and curious is why the Federal Government keeps increasing the electricity tariffs for private investors. Is government out to discourage private investment in Nigeria? What is the rationale for the increases?

This is coming at a time investors are shunning Nigeria, even as those already in the country are pulling out. Rather than float incentives to attract investors, the government appears bent on stifling badly needed investments. For instance, the dearth of investment in the South-South oil producing region has of recent been a matter of serious concern. We had in our previous comment expressed the need for a proactive policy thrust to reverse the trend and re-energise what serves as the economic backbone of Nigeria. 

Before now, the Steel Manufacturing Group of the Manufacturers Association of Nigeria (MAN) had threatened to shut down over high electricity tariff. The manufacturing firms are finding it extremely difficult to remain in business, a situation that does not augur well for the economy. The industrial sector is perhaps the hardest hit in the electricity quagmire.

It is common knowledge that hundreds of manufacturing firms have closed shop and relocated to neighbouring countries where better prospects exist for cheaper energy. That the situation has not improved despite all the promises made by the government is worrisome. How do we create the much-needed jobs when there is no remarkable investment and factories are closing down? 

Not long ago, citing lopsidedness, the MAN group warned that the new Multi Year Tariff Order (MYTO 2.1), which became effective since January 1, 2015, was paralysing most companies in the country. For instance, the steel manufacturers and other consumers on tariff D3 are DISCOs’ most prominent customers. Since electricity is the most critical input in industrial production, unbridled electricity hikes, definitely, would have adverse impact on manufacturing.

Indications are that most manufacturers had based their projections on MYTO 2012 – 2017 tariff order, meaning that the sudden increase in electricity would have disrupted the -long-term plan of the manufacturers.

Since January 2020, when government ordered a 78 per cent increase in electricity tariffs, available statistics shows that commercial customers who were paying between N20.45 and N27.20 per kWh since 2015 were charged between N37.39 and N47.09 per kWh.

Their industrial customers, who have been paying between N20.95 and N27.22 per kWh in Abuja, were charged between N36.07 and N47.09 per kWh under the new dispensation. 

Also, those in the special category who have been paying about N20.06 per kWh in Abuja since 2015 were raised to about N35.74 per kWh. All these have been raised further under the latest tariff increase.

While Nigeria is demanding over N47.09 per kWh as minimum unit charge, other African and industrialised countries demand as low as N21 per kWh as their minimum price. The countries include China, India, Russia, USA, Canada and Angola, among others.

Did government consider affordability in a country where the minimum wage is N30,000, which many states are finding hard to pay?

The result is that with a very low profit margin of less than one naira per kg, Nigerian companies could hardly sustain seven to eight digit differential prices among competing companies. Obviously, therefore, the manufacturers are highly disadvantaged, which is a disincentive to investors. The present regime of GENCOs and DISCOs, many thought would bring respite has so far been a disappointment. While the GENCOs are unable to generate enough power owing to several factors, including inadequate gas supply, the DISCOs are not able to effectively distribute what is available. What is more, transmission company in the hand of government hasn’t been transparent with their capacity to deliver services to DISCOs.

The existing infrastructure is decrepit.  As it were, only the high profile companies can afford the high cost of energy and manufacturing. Rather than concentrate on the primary objective, many companies spend millions annually to generate their own electricity, thereby leading to high overhead cost. 

With the Independent Power Plants (IPPs) contributing a meager 2,500 megawatts of power as at February, 2015, the country can’t have enough energy because enough is not generated. 

Low investment over the years coupled with the near total dependence on gas, constitute serious obstacles. The way out is to seek alternative energy sources for proper energy mix. This explains the diversification into solar energy and wind energy, even though, this is still at infancy. 

The quest for coal as another source of energy is worthwhile. Investors seeking energy from coal should look inwards for Nigeria’s abundant coal reserves, rather than embarking on costly importation of the same product. Emphasis should be on long-term strategic power development rather than short-term gain. In the main, while there is an understanding that electricity tariffs may not be too cheap, our economic status, which defines our purchasing power is an issue, which requires some civic education by the operators and regulators, which seem to be speaking the same language against the people at this time.