By Idowu Oyebanjo
The Nigerian
Electricity Regulatory Commission (NERC) has finally succumbed to pressure from
investors in the Nigerian Electricity Supply Industry (NESI) to increase the
tariff regime in the absence of steady power supply and at a time of economic
downturn. Consumers, organised labour and affected stakeholders have expressed
dissatisfaction. As painful as this may appear, it is suffice to examine the
Strengths, Weaknesses, Opportunities and Threats inherent in the increased
tariff structure planned for the 1st of February 2016.
 |
| *President Buhari |
Government's
Responsiveness And Support
In every regulated
electricity business, the price of electricity as a commodity needs to be
cost-reflective. This among other requirements means that price must cover the
cost of efficient delivery of electricity through the value chain. Before now,
the price or electricity tariff in Nigeria
is one of the lowest in the world and one of the lowest in West
Africa . Electricity as a commodity is produced worldwide following
roughly the same process so cost should within reasonable limits be reflective
and comparable. The usual dilemma in a regulated business is the requirement
for government, by means of the regulator, to seek to be fair to all
stakeholders especially consumers, while maintaining a fair profit margin for
investors. This is generally a conflicting role. However, the government showed
leadership in trying to accede to the plight of the investors by setting new
guidelines that will enable increased availability of supply albeit with
increase in tariffs to large consumers.
Most Nigerians are exempted from the increased tariffs
The increased tariff
regime exempts consumers in the R1 and R2 categories who make up the largest
number of residential consumers (albeit for six months only) whose consumption
of electricity is strictly for non-commercial, but regular day-to-day home use.
Most homes, and therefore the bulk of workers and citizens, are therefore
unaffected for now. However, it must be stated that consumers who engage in
commercial activities either in their residence or in a separate facility along
with industrial consumers who consume a significant amount of electricity (high
end users) have been directly targeted by the increased tariffs.
*Fashola, Minister of Power
Estimated Bill
And Fixed Charges To Be History
Abolition of fixed rate
that is charged consumers whether electricity is consumed or not is a welcomed
development. This of course varies from place-to-place but it is about 750
Naira on the average. Also, Discos have been mandated to meter all customers so
that consumers will only pay for electricity they have used. Consumers can
technically insist on settling payments only if they have meters. Estimated
billing should become history!!!
This of course will
force all distributors to aggressively pursue the metering issue (if NERC
performs its duty). It is a blessing in disguise as estimated bills through the
hitherto dubious estimate regime forced most consumers into the illegal theft
of electricity in conveyance. This has fostered large scale corruption in the
power sector from consumers to staff of electricity companies who collude to
short change their employers. This move is expected to block the massive leakage
in electricity described as commercial and collection losses.
A More
Customer-Friendly Dispute Resolution Strategy
In the meanwhile, there
will continue to be disputes over electricity bills. The good news is that the
dispute resolution process has been revised to be more customer-friendly and
consumers need to be aware of this. Unlike before where the consumer is
expected to continue to pay both disputed and future bills whilst the dispute
resolution process is on-going, the new dispute resolution mechanism allows the
consumer to continue to use electricity until the resolution of contested
electricity bill. So they cannot be disconnected unfairly. This will force the
distributors to improve in their customer engagement obligations.
Customer-friendly initiatives like this will make consumers experience better
customer service.
The Weaknesses
NERC Misled
And Disgraced The Nation
A significant portion
for the charges paid by consumers is the cost for losses. Therefore one expects
that the baseline values to be used would be determined as accurately as
possible. However, in arriving at the charging methodology used for the
Multi-Year Tariff Order (MYTO), NERC got it all wrong. Baseline levels of
losses were wrongly determined leading to over/under estimation of charges to
consumers. This is what happens when you put square pegs in round holes - Try
hard as you may, it won't fit. How long do we want to experience policy
somersaults before we hear the cry of power system engineers that electricity
is not a commodity like in economics? Someone who lacks understanding of power
systems was responsible and accepted on behalf of the nation the baseline
levels, ruined the image of the nation, and extorted consumers for many years.
NERC is culpable in this national embarrassment as Lawyers and economists will
never be in position to regulate electricity business. They do not understand
power systems (and rightly so), and do not understand the reports provided by
consultants who carry out studies for them anyway - Can we say again that to
realise appreciable development in NESI today, there is an urgent need to put
technocrats in charge of regulation. Copying industrialised economies in their
models of power system regulation is not bad in itself, but doing so without
knowing why they do things is foolhardy! They already have stable electricity
for decades so they can afford Lawyers and Economists to toy with their power
industry plus they have consultants who were formerly technocrats in the
industry in the many decades leading up to the privatisation of the electricity
supply industry. Their situation is different from Nigeria
 |
| *Amadi, NERC Chairman |
NERC &
Policy Somersaults
NERC realised too
little too late. After waking up from its slumber, NERC suddenly realised
consumers have been milked dry for over 5 years, removed this element of the
tariff (losses) and that disrupted the serenity of the system which made Discos
to declare a force majeure with the potential to truncate the privatisation
process. This kind of policy somersault send wrong signals and drive away
investors. NERC & the government need to provide a clear message of
assurance to Discos that there is no plan to truncate the on-going power sector
reform. This must be supported by a form of guarantee that will be enough to
make Discos to begin investing in the network. At the minute, they are not!
Distribution
Companies (Discos) Presented Fresh Baseline Values For Losses
The new administration
took immediate action to set matters right by asking the Discos to submit their
own fresh calculations of baseline loss levels and power flow studies were
carried out. The pertinent questions are: Who validates the accuracy? Same
regulator? Same consultants? There is an urgent need to make available the
methodology used by the Discos in arriving at their values and their cost
profiles. Also, NERC needs to request each Disco to publish its strategy for
loss reduction while it continues to monitor (year-on-year) actual reduction in
estimated losses. It is highly likely that if the fresh baseline values have
been wrongly determined, then we will keep going round in circles and there is a
potential for under/over estimation of charges to consumers forcing a return to
status quo ante. This has to be avoided. The likelihood is high because to
determine losses, each distributor would have to have accurate data about
consumers and their metered consumption, transformers, lines, cables,
substations, network demand, network imbalance (NPS causes network losses),
power factor, system operation and control. The subject is fairly complex, and
certainly beyond the understanding of the general engineer apart from Power
System Engineers who know their onions.
There is an urgent need
to establish the basis for assumptions on electricity costs that is consistent
with the overall power sector reform road map by ensuring that Discos develop a
robust and accurate means of measuring and reporting distribution network
losses. Also, discrepancies in reported losses by Discos will cause a distorted
view of the power sector reform in Nigeria
NERC -
Better Late Than Never
NERC whose primary
function is the protection of the consumers has left the matter till the end of
its statutory 5-year tenure in office. This looks as if intentionally calculated
to cause chaos in the system and therefore perpetuate the elongation of their
term or services. Only time will tell! More than that, the increased tariffs
came at a time when the regulator has been involved in the scandal of over
bloated and outlandish severance payments to its commissioners which is
currently under investigation by the National Assembly. With most consumers
having no meters to ensure that they pay for what they have used, the
possibility of a looming sack of workers in the Banking sector, and the fact
that the benefits of privatisation since November 2013 is yet to be felt in
terms of availability of supply, this increase in tariff came, saw, and
conquered Nigerians!
To be
continued...
*Idowu
Oyebanjo is a Power System Professional from the UK
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