The recent notice to eight electricity Distribution Companies (DisCos) by the regulator, the Nigerian Electricity Regulatory Commission (NERC) of its intention to cancel their licenses for failing to meet their obligated remittance to the market could derail the modicum of success recorded in the power sector hence, the need to exercise restraint.
To be fair, the situation with the DisCos has become like the proverbial fly perching on the scrotum. If you hit it too hard you run the risk of inflicting pain on yourself, assuming you didn’t end up shutting down the business of procreation altogether. Though the DisCos’ market behaviour is irritating other market operators as well as the regulator, but you don’t burn down a house to address the problem of a gang of unruly termites.
The Commission in its October 8, circular said it has reasonable cause to believe that eight DisCos including the Abuja Electricity Distribution Company Plc, Benin Electricity Distribution Company Plc, Enugu Electricity Distribution Company Plc and Ikeja Electric Plc, Kaduna Electricity Distribution Company Plc, Kano Electricity Distribution, Company Plc, Port Harcourt Electricity Distribution Company Plc and Yola Electricity Distribution Company Plc, have breached the provisions of the Electric Power Sector Reform Act, terms and conditions of their respective distribution licences and the 2016 – 2018 Minor Review of the Multi-Year Tariff Order (MYTO) and Minor Remittance Order for the year 2019.
“The Commission considers the action of the aforementioned DisCos as ‘manifest and flagrant breaches’ of EPSRA, terms and conditions of their respective distribution licenses and the Orders, and therefore requires each of them to show cause in writing within 60 days from the date of receipt of this Notice as to why their licenses should not be cancelled in accordance with section 74 of EPSRA,” NERC said.
The substance of the regulator’s grievance is that even though it has published a minor review of electricity tariff which was meant to address shortfalls caused by lack of non-reflective tariff, and which the DisCos have always clamoured for, the DisCos have not met the minimum remittance threshold agreed to take effect by July 2019.
The increased tariff which takes effect from January 1, 2020, prescribes at least a 30 percent rise in tariff across the various customer classes. DisCos were required to meet their obligation to the market, improve collections by metering customers especially government ministries and departments and payback loans from the Central Bank. They were also required to reduce their technical and commercial losses but the data from the regulator show they have not met these obligations.
Since NERC published this order, we understand that there have been discordant tunes from the DisCos. This is to be expected in a sector, where both the regulator and the operators haven’t faithfully kept their end of the bargain. Some DisCos are even considering dumping the licenses and declaring a force majeure. For these DisCos we also caution restraint, because an eye for an eye, will eventually leave everyone blind.
We encourage the DisCos to respond to the regulator’s order in good faith and provide a clear-eyed response to the query. It is even possible that in the course of providing a response, the regulator can see areas it can improve the market. The fact that even Yola DisCo now operated by the government, isn’t even meeting its own obligations too should indicate that the challenges are quite fundamental. But by virtue of the law, this regulator has the power to issue this type of orders.
For a long time, NERC has been accused of lacking independence, its dictates frequently ignored by market players especially the DisCos, so we understand why the regulator will want to show that it means business. But it does not want to bring down the market to force down the message that it is no longer business as usual. This will be counterproductive, like pulling out the roots to see how the sapling is faring.
The power sector is troubled by teething challenges that require creative solutions. These include an inefficient market, obsolete and broken infrastructure manifested in a grid that collapses when there is too much or too little power and turbines lying idle because generation companies cannot get enough gas to them in a country awash with gas.
To address the broken electricity market, NERC has commendably effected a tariff increase but this is also in an economy characterised by slow growth due to the federal government’s remarkably aberrant economic policies. DisCos who are charged with collections to pay the value chain collects poorly and remits even worse. Power theft abounds and their allowed investment threshold under the Multi-Year Tariff Order often makes it a tough choice either to buy more meters or correct defective base stations.
The electricity consumer in Nigeria will be worse off in a fight between the regulator and the DisCos and the clear winners will continue to be lawyers who seem to be the only ones having a ball while operators, regulators and the government make a sport out of suing each other.
