Cost Reflective Tariff: New Framework For Electricity Supply, Distribution And Pricing Required In NESI

By Idowu Oyebanjo

The issues surrounding cost reflective tariffs in NESI has remained unresolved even though it seemed all stakeholders acknowledged it but did nothing about coming together to deal with the issue which has kept the reform process in limbo since February 2016! This is about to change.

The two most important stakeholders in the business of electricity supply in Nigeria are the "demons" - those who believe that having a stable electricity situation in Nigeria will mean a huge loss of cash flow for them and their families and the customers who will actually pay the monies defined by any "cost reflective tariff", short-changed without meters but made impoverished by the corruption based estimated billing system which holds way today in NESI. The demons may include "Generator" importers, marketers, repair technicians and those involved in businesses connected with the scarcely available gas and oil (fuel for most power generating plants) such as marketers of petroleum products and the vandals who destroy gas pipelines to earn income from those who carry out repair works or those who gain political scores therefrom. These two groups of stakeholders have been grossly and arrogantly neglected when decisions are made for them or because of them. 

This is not to say there are no other important stakeholders like the government, CBN, NERC, Ministry of Power, consumer advocacy groups, ANED, NBET, DISCOs, GENCOs, TCN, foreign investors, local Banks, to mention but a few. The senate has thrown its weight behind the consumers of electricity declaring to put a stop to the recurring spate of bail out for which we predicted will become the lot of the ill-conceived, wrongly timed electricity market conjectured by some unqualified Nigerians who mediated the reform process. But there is always a time to make a U-turn in life when one is confirmed to be headed in the wrong direction. It is a question how far wrong is one prepared to go before doing the needful. In this regard, it is pertinent to examine the just released framework for petroleum products supply, distribution and pricing in May 2016 by the Federal Ministry of Petroleum Resources.

The Ministry has set a new price regime to solve the recurrent fuel scarcity by ensuring availability of products at all locations in the country to enhance market stability and improve fuel supply by proposing a price regime that will enhance private sector participation but also in a way that is clear, logical and transparent. It is left to see whether consumer groups and their representatives were carried along and or whether labour will accede to the new price regime but this is not the subject of this article. The lesson to be learnt is in the detail. 

Idowu Oyebanjo

The recognition of the fact that a subsidy regime (known as bail out in NESI) running into billions of Naira monthly in the name of deficit caused by some vaguely defined and unclear factors is unsustainable in a sane clime and in an atmosphere of anti-corruption. Clearly, the continuation of subsidies in any way, shape or form for privatised entities defeats the objective of privatisation in the way and manner it has been done to date in NESI. The approach used by the Ministry of Petroleum aims to ensure products are monitored and modulated such that consumers get a fair value for products purchased. The price modulation framework in use works only when the product, in the case of the oil industry - petroleum products, is available. Although the product in the electricity supply business is grossly and wantonly unavailable, the ideas can be tailored to suit. In doing so, the real cost of producing one unit of electrical energy (expressed in KWhr) has to be determined and this I must say is a very rigorous job not meant for the lazy consultants who parade themselves as credible to Nigeria, when in actual fact, they cannot operate in their countries of origin. 

When carried out holistically, such a "true" cost of electricity will factor in the cost of running and maintaining generators, the estimated hourly wage of the average Nigerian, the average price of electricity in countries with uninterrupted power supplies (there will always be power cuts anywhere in the world), the true cost of gas, cost of technical and commercial losses on the network, the impact of distributed generation, other associated costs in converting fuel to energy and transporting same to consumers, the average cost of exporting gas and electricity to other African countries and more. Monitoring and modulation will include enforcing the rules for strict compliance by stakeholders and re-evaluation of the "true" cost from time to time as local refining capacity of petroleum products is enhanced for example. The expectation then is that foreign investors and the private sector will be willing to commit to NESI. In all of these, the role of human capital resource requirement to handle the day-to-day operation of the functional electrical power system that will result must not be overlooked.

The regulatory regime must serve the interest of the people and provide benefits to all stakeholders. A comprehensive study of the cost of products and services within the electricity supply value chain is a must before Nigeria should think of having a stable electricity market that will create and reflect a truly privatised electricity supply industry. What we have now is chaos!

*Idowu Oyebanjo CEng MNSE MIET writes from the United Kingdom (Email: oyebanjoidowu@yahoo.com)