The minor electricity tariff review planned by the Nigerian Electricity Regulatory Commission (NERC) could push the market closer to tariffs that guarantee commercial returns, analysts say.
NERC, in a notice published April 26, said it had concluded the Extraordinary Tariff Review process for the 11 DisCos and would commence the processes for the July 2021 Minor Review of MYTO – 2020.
This review will consider changes in inflation, foreign exchange, gas prices, available generation capacity, and CAPEX required to evacuate and distribute the said available generation capacity in accordance with EPSRA and other extant industry rules.
According to the commission’s Multi-Year Tariff Order, the rules underpinning electricity pricing in Nigeria, electricity tariffs should be reviewed twice yearly to reflect changes in the economy.
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However, this notice by NERC has elicited outrage from many Nigerians who say poor power supply by operators and the difficult economic conditions they are facing do not warrant another tariff increase.
When NERC ordered the revision of the MYTO last year, it included ensuring that customer tariffs are commensurate and aligned with the quality and availability of power supply committed to customer clusters by the DisCos as part of its objectives.
With power distribution hovering below 3,000MW within the past few months, many DisCos are not meeting this objective. The regulator is yet to develop a system to measure if customers are truly getting the contracted hours under the service-based tariff system – where customers are billed on hours of power they are supplied daily.
Yet, this presents a complicated situation for the regulator. Without biannual tariff reviews as prescribed by the regulation, the commission would be violating its own rules and lose the credibility to demand that operators improve service.
Some analysts say that wholesale rejection of an upward review of the distribution tariff solely due to customer dissatisfaction with current service delivery is not an equitable way of considering the issue given the current negative macroeconomic trends (which tariff reviews are meant to address), and the subsisting gulf between the cost of on-grid power supply and the tariffs customers actually pay.
“Indeed, there is no requirement that a review should only be done after the objectives of the previous MYTO have been met,” said Wolemi Esan, energy lawyer and partner at Olaniwon Ajayi, a Lagos-based law firm.
According to Esan, the focus should be on the progress, if any, that the DisCos have made in achieving the service improvement commitments set out in their respective Revised MYTO 2020 Orders and to what extent the tariffs reflected in the Revised MYTO 2020 Orders are at a level necessary for those service improvement commitments to be fulfilled.
Attention should also shift to the extent to which macroeconomic variables outside the control of industry stakeholders such as inflation, the exchange rate, gas prices, and available generation capacity have changed since the last tariff review.
An official of the commission who spoke to BusinessDay argued that these objectives set out in the MYTO 2020 are a journey, goals, and are not things that can be done in a day.
He said that DisCos signed agreements with companies and with the bulk trader based on dollar-denominated rate that is constantly gaining against the naira which changes the parameters used in drafting these agreements, hence a minor review takes into account these changes including the cost of gas, inflation rates, and gas prices.
Esan agrees, saying “the objectives set out in revised MYTO 2020 Orders reflect a commitment to move the sector towards cost-reflective, service-based tariffs and that transition is still ongoing”.
“My expectation is that the completion of this extraordinary tariff review will move the needle closer to that goal,” he said.
Another energy sector analyst, Chuks Nwani, said that the MYTO review is one of the statutory obligations of NERC under the EPSR Act.
“So the ability or failure of the industry participant to achieve the key performance target can be dealt with under a separate rule of engagement,” Nwani said.
NERC has given stakeholders and the general public 21 days to send their comments to the Commission so that their concerns can be taken into consideration in the review.
