Vice-President, Prof. Yemi Osinbajo, recently advised Nigerians to brace up for an inevitable increase in electricity tariff. Speaking at the 6th Presidential Business Forum in Abuja, he was reported to have explained that there was no question at all that “we must pay higher electricity tariff.”
He, however, said that the government would not allow any increase until its efforts to clean up the electricity value chain is completed. According to the Vice-President, government is still paying N700bn assurance guarantee annually to ensure uninterrupted gas supply in the power sector. The Distribution companies (Discos) had also recently written to the regulator, the Nigerian Electricity Regulatory Commission (NERC) for a 200 percent hike in tariffs.
The plan for an increase in electricity tariff is unacceptable. As the vice-president has reasoned, the only way that an increase would be in order is if the electricity value chain is cleaned up and electricity supply increases significantly. Poor electricity supply has forced many industries to relocate to neighbouring countries, while many small businesses have shut down because of unstable power supply. Secondly, estimated billing has remained a contentious issue. Many consumers regard estimated billing as fraudulent. In addition, the non-provision of prepaid meters to consumers remains an issue between them and the distribution companies. Even the government’s intervention, which gave consumers the liberty to choose where to buy their prepaid meters, has failed to resolve the problem.
These are the problems in the power value chain that need urgent resolution before any hike in tariff is contemplated. Doing otherwise will amount to putting the cart before the horse. The truth is that many Nigerians will not be opposed to a reasonable increase in electricity tariff if they are assured of regular power supply. What they are receiving now are atrocious bills for unstable electricity. Estimated bills discourage consumers. They do not see why the discos should be asking for higher tariffs, for supplying less electricity.
Since the inception of reforms in the power sector, and the introduction of the Multi Year Tariff Order (MYTO) which guides the economics of electricity trading in Nigeria, the periodic tariff reviews it provides for have not been controversial. Figures from the National Bureau of Statistics (NBS) indicate that the MYTO of 2015 was arrived at with gas prices of $2.44/mmbtu, which now hovers above $3, an inflation rate of over 13 percent.
The forex rate at the time was also $1/N198, but it is now N350 to a dollar at the official rate. This, experts say, has negatively affected the importation of maintenance parts.
There have been allegations of inefficiency and profiteering by Discos through tariff hikes, which the government has not been able to resolve. This has left consumers at the mercy of the distribution companies. Yet, power generation and supply remain critical to the economic wellbeing of the citizens and the development of every sector of the economy.
We are not opposed to a gradual but reasonable increase in tariff. But, we strongly oppose the issuing of atrocious bills through estimated billing. Let all consumers who want meters be supplied with the equipment so that they can pay for only the electricity that they use. There must also be stability in power supply before the hike is contemplated. Government must protect Nigerians from the highhandedness of electricity distribution firms. Since their emergence over three years ago following the privatisation of the power sector, they have shown lack of capacity to achieve the objectives of the unbundling of the Power Holding Company of Nigeria (PHCN). This raises the question of whether due diligence was observed before the assets were handed over to the Discos and Gencos.
Over the last two years, government’s financial intervention has saved them from insolvency. Therefore, any resort to an arbitrary increase in tariff to mask their financial inadequacy will not be acceptable.
Early this year, the NERC called for subsidy/incentive that will encourage the Discos and Gencos to commit more money to the sector. Its proffered solution included a hike in tariff or subsidy in form of tax holiday and cheap bonds. We do not think any of these should be done until they improve power supply in the country.
Instead of shoring up the Discos with higher tariffs, the ones that cannot deliver on the nation’s power supply objective should be declared insolvent and taken over by the government immediately. The Federal Government has sunk so much into the power sector with little to show for it. The time has come to make power companies deliver on their mandates.