New Electricity Tariffs: Questions by Reuben Abati

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Tuesday, January 07, 2020 / 4:56 PM / OpEd by Reuben Abati / Header Image Credit: Herald.ng

 

The Buhari administration has given Nigerians a most unusual and disturbing New Year Gift, in the form of a proposed increase in electricity tariffs, enforceable from April by the Electricity Distribution Companies (Discos) and to be completed by the end of 2021, with the full backing of the regulator, the Nigerian Electricity Regulatory Commission (NERC). What happened? I am in a state of shock. What we knew, what we saw, before now, indeed what we were told, was that the electricity distribution companies were the weakest links in the electricity supply chain. They were accused of different infractions by the Ministry of Power, the Nigeria Bulk Electricity Trader (NBET) and the NERC which included, failure to abide by the provisions of the National Electricity Power Sector Reform Act (EPSRA), violation in particular of Section 74 thereof; failure to make due remittances to the Bulk Trader resulting in huge debts that had become a problem for the sector, and failure to comply with the metering system.

 

By October 2019, the NERC had served notice that it was prepared to revoke the licenses of the 11 Discos, should they fail within a 60-day deadline, to give reasons to the contrary in defence of their continued presence in the electricity market. The standard official line was that the Discos were incompetent and ineffective, making the value chain difficult for both the Transmission Company of Nigeria (TCN) and the Generating Companies (GENCOs). The DISCOS insisted that they had done nothing wrong. They complained about (i) the huge cost of doing business in the sector; (ii), the failure of government to enforce cost reflective tariffs in line with the Multi Year Tariff Order (MYTO); (iii) electricity theft, (iv) the non-availability of gas due to vandalism, (v) government's refusal to engage with stakeholders in the sector and (vi) they alleged that government is the biggest debtor in the market due to the refusal of government departments and agencies to pay electricity bills.

 

The big take-away for me was the persistent threat by the Federal Government of Nigeria that the DISCOs will be scrapped, or that their licenses will be revoked and re-assigned. It was said quite loudly that the current owners of the licenses got involved in the electricity sector not because they have the technical know-how or the financial muscle, but simply because they were close to the Jonathan administration, which accelerated the power sector reform process. Cast in that shape, the electricity sector became part of the unending navel-gazing, Jonathan-caused-it card that has been consistently played by the Buhari administration. 

 

What is shocking however is that the decision to increase electricity tariffs raises more questions than answers. On the surface of it, the Federal Government and its agents have capitulated to the DISCOs. How and why? At what point did the Federal Government buy into the argument of the DISCOs that the most important challenge in the electricity sector is the payment of cost-reflective tariffs? And how was the 77% increase arrived at, with consumers in the South East having to pay more than the rest of the country? Is this a case of ethnic discrimination? Do consumers under Enugu Disco use more electricity? What formula determined the new proposed rates? Well, they tell us it is all based on "changes in macroeconomic variables and available generation capacity". Please, what does that mean in common man's language? We have also been told that the proposed tariff hike is a retrospective adjustment to make up for revenue shortfall for the DISCOs from 2016 -2018. So, should the consumer be punished for the regulator's failure to respect its own enabling Act?  And by the way, in the last four years, electricity tariffs have increased by about 300%.

 

What we see is an excessive emphasis on revenue and profit by those in charge of the service delivery sectors of the Nigerian economy in general.  Nobody cares about the consumer. On all fronts, the Nigerian consumer is left unprotected. He or she is perpetually served the short end of the stick, and violated without consultation or respect for his or her right to be heard. The electricity sector is one of the most inefficient sectors in Nigeria. The national grid collapsed more than 10 times in the year 2019. Every month, we were told that gas pipelines had been vandalized. The DISCOs complained endlessly that they were having problems, but they were merely giving excuses. The regulator towards the end of the year introduced a compulsory metering policy and urged consumers to get properly metered to avoid the menace of estimated billing and the grand corruption that comes with it The DISCOs resisted the metering policy and virtually either refused to support it or adopted measures to frustrate it. They circumvented the terms of the policy. Today, most consumers of electricity remain unmetered. They do not enjoy efficient service. They are billed on the basis of some nebulous categorization called "status." What "status"? The owners of  Yola DISCO pleaded force majeure and threw in the towel, but other DISCOs continue to operate without offering the people premium service. This has angered customers across the country. In Benin, the people once carried placards against the electricity distribution company, the BEDC. In other parts of the country, DISCO officials have been beaten up and given a bloody eye.

 

On top of it all, the proposed increase in electricity tariffs is insensitive to the feelings of electricity consumers. Many Nigerians insist that they are willing to pay for electricity if they get it on a regular basis - for now, we are a nation in darkness. The people want transparency - the pervasive estimated billing system does not promote that, the DISCOs simply charge as they wish on the basis of nebulous factors. The people want meters, but nobody is taking that seriously. The timing and announcement of the proposed increase are also unfair. It is an unkind New Year Gift to a people confronted with a year of more taxes, with Value Added Tax jumping from 5% in 2019, to 7.5% in 2020 along with other taxes under the Finance Act of 2019. Nigerian workers expect that the increase in the new national minimum wage will be fully implemented in the year 2020, but it is obvious as we enter the new year, that the new minimum wage has already been wiped out by increased inflation and taxation. It is ever so convenient for government to punish the common man. In other countries, governance is aligned to the people's interests and welfare. In Nigeria, our governors seek to inflict pain and punish the people.

 

The opaqueness in the electricity sector is another problem. It promises to be worse than what we have seen so far in the oil and gas sector and the inefficiency of the oil corporation, NNPC. We are told on one hand that electricity tariffs will go up in April, while at the same time, the regulator announces that the Federal Government will underwrite N544.8 billion Electricity Tariffs Shortfall in 2020. How? Is that a subsidy? And if so, is there a provision for it in the 2020 Budget? N544.8 billion? How was that figure arrived at?

 

The Federal Government says the intended increase in electricity tariffs is meant to get the sector back on track. Taxing the poor and the impoverished is not the best way to get anything back on track. The electricity sector is in urgent need of a general review and reform, and there are many issues to be addressed. Cost reflective tariffs under the MYTO regime may make the investors happy, but making consumers happier and protecting their interests should be the priority of government. Will increase in tariffs translate into efficiency? I doubt. Efficient service delivery is important. Will government agencies, the biggest debtors in the electricity sector now pay their debts? We don't know. Or has there been a quid pro quo at the people's expense? Is government planning to write off the debts of the DISCOs, and forgive their sins? What has happened to the plan to revoke operational licenses in the sector? Too many questions. But that is Nigeria for you. Nothing is ever straight-forward.


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Previous Posts by Dr. Reuben Abati

1.         Omoyele Sowore: Portrait of A Life in Protest - Abati - Dec 10, 2019

2.       Of Constituency Offices and Projects - Abati - Dec 03, 2019 

3.       The Supreme Court and the Atiku Election Petition - Abati - Nov 05, 2019

4.       The Constitutional Crisis in Kogi - Abati - Oct 30, 2019

5.       The Spiritual Solution to Boko Haram - Abati - Oct 08, 2019

6.       Oct 1: The Journey So Far - Oct 01, 2019

7.        Presidential Powers and The Vice President - Sept 24, 2019

8.       Nigeria, Xenophobia and Ramaphosa's Apology - Sept 18, 2019

9.       Mohammed Adoke Writes Back -  Sept 18, 2019

10.   P and ID vs. Nigeria: A Review by Reuben Abati - Sept 10, 2019

11.     When Soldiers Do Police Work: Disaster - Aug 14, 2019

12.    Peter Drucker And The Things That Changed

13.    FBI, Nigerian Fraudsters and Other Stories

14.    P and ID vs. Nigeria: A Review by Reuben Abati

15.    When Soldiers Do Police Work: Disaster

16.    On June 12 We Stand 

17.    The Speech Buhari Didn't Make

18.   The People's Revolt in Algeria and Sudan

19.    The Obasanjo Bombshell - Abati

20.  Ogun 2019 Politics And Deployment Of Violence - My Encounter, Reuben Abati

21.    Chief Anthony Anenih: A Personal And Political Portrait

22.   The "Oshiomhole Must Go" Coalition

23.   Beyond Fayose: The Future Of Ekiti State

24.   The "Spirit Of Error" In Nigerian Politics

 

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