The contentious issue of electricity tariff in Nigeria

The recent disagreement between the Nigerian Electricity Regulatory Commission (NERC) led by Sanusi Garba and the Minister of Power, Mamman Sale over the latter’s upward electricity tariff review has sent wrong signals to industry operators and consumers. However, beyond the directive and counter directive, the problems confronting the power sector are more of the lack of full understanding of the fundamentals of the electric market structure, conduct and performance metrics.

It is also not just tariff increase, but an assurance that the market is well governed and ensuring that everybody has confidence that actions taken will be followed through and help take the nation towards actualization of her energy needs.

The Minister had on Thursday 7th January 2021 directed the regulator, NERC, to suspend the upward tariff review stating that the Federal Government committee working on the tariff review should be allowed to complete its work before any adjustment .This development did not go down well with some sector stakeholders as they expressed concern on the implication to the market.

In line with the Multi Year Tariff Order Methodology, the NERC had in pursuant to the Electricity power sector reform act of 2005 made an upward review of electricity tariff by two Naira to four Naira effective January 1, 2021 to reflect what it called ‘increase in inflation and foreign exchange rates’. NERC in a statement by Michael Faloseyi, assistant general manager (AGM), Government, External and Industry Relations said, “In compliance with the provisions of the Electric Power Sector Reform Act (EPSRA) and the nation’s tariff methodology for biannual minor review, the rates for service bands A,B,C,D and E have been adjusted by N2.00 to N4.00 per kilowatt hour (kWhr) to reflect the ‘partial’ impact of inflation and movement in foreign exchange rates.”

The thrust of this unfolding event is not on the basis of whether higher tariff is justified or not. What is at stake is whether the process of increasing or decreasing the tariff follows the rule of law without any evidence of regulatory capture.

The responsibility to approve or disapprove tariff rate is vested on NERC and as long as the due process is followed, so be it. The caveat, however, is following the due process as to the Act. For example, do the Discos asking for increase in tariff merit their request based on efficiency and effectiveness criteria? Have they made investments over the last reviewed period to expand capacity and improve deliverability? Is there any improvement in energy access and affordability?

There is a need to ensure provision of adequate tariff to guarantee earning power of investments by operators in the industry. It is, however, pertinent to ask if the requirements needed to kick start the review process have been met. Economic populism cannot rekindle the power sector, neither will prebendalism mentality help the matter, when it comes to determining appropriate tariffs to signal the readiness of the sector to increase access to power and sustain it.

Nigeria, as a country, cannot continue to do the same thing and get different results. It is time to revisit the Electric Power Act and follow the fundamentals of energy economics.

Confirming the inadequacies of the distribution sub-sector, in July 2018, in the face of their call for an increase in tariffs, the then Minister of Power, Works and Housing, Babatunde Fashola, had accused the DISCOs of sabotaging the country’s economy by their refusal to carry out government’s directives aimed at resolving key constraints in the sector’s performance. Fashola blamed the poor performance of the electricity industry on lapses caused by the DISCOs, noting that the DISCOs had deliberately refused to provide meters to customers, in addition to other acts, which were negatively stunting the growth of the generation and distribution sectors, such as load rejection. In addition, Fashola, had in August 2018, at Minna, Niger said, “Those who know and who genuinely desire to solve problems in the industry do not need to be told that the most pressing challenge of the power sector today lies at the distribution end”.

Amongst the challenges in this sector of the value chain, he had identified the most urgent to be distribution of available energy to consumers, saying there is unused energy in the region of 2,000 megawatts. Key among the constraints engendered by DISCOs is their refusal to meter their customers, so that they can continue to bill the customers indiscriminately through outrageous bills forced on them.

Indeed, the system is in serious crisis and the level of leadership needed is extra ordinary as at now. The regulator can suspend pricing to carry out consultations if need be, and not what the government does. Tariff should be peer reviewed by the industry based on clear methodology while the regulator must continue to give industry assurance of improvement in performance.