Discos push for increase in electricity tariffs

Distribution companies (Discos) may put pressure to raise electricity tariffs further with an argument that increasing prices from present levels would enable them pay their wholesale obligations to the generating companies (Gencos), BusinessDay has gathered.

Both the Gencos and Discos are of the view that Nigeria’s electricity is still under-priced, although it is not clear yet, by how much they would like the price raised.

Sam Amadi, chairman, Nigeria Electricity Regulatory Commission (NERC), had consistently assured that the commission was not considering possible tariff review at the moment, even though it is assessing and validating the aggregate technical, commercial and collection losses in the power industry.

However, Chinedu Nebo, minister of power, recently indicated plans to increase price of gas to power plants in the nearest future which may push to a total review of electricity tariffs across the country.

He specifically said gas-to-power price might rise from its current $1.5 to $2 mbtu and this may affect the tariffs on electricity.

BusinessDay learnt that the distribution companies are still going through an exercise of reconciling the process of collections with the older process which the regulator has been doing and will come up with their final resolution when that process is concluded.

“I do think Nigeria’s electricity is under-priced considering the cash flows through the sector at the moment and what the distribution companies are collecting,” David Ladipo, managing director, Azura Power Holding Ltd, told BusinessDay in an exclusive interview.

Ladipo, whose company has been the brain behind the flagship 450MW Azura-Edo Independent Power Project could not comment on the anticipated quantum increase, but said his understanding from the investors is that it needs to be raised further.

“When I’m speaking to those on the distribution side, the message I get from them is that in order to pay their wholesale obligations to the generating companies, they still need to raise tariffs further. That is the message that I’m getting from them that it still needs to go up.

“I’m not going to comment on the quantum of that, but I’m just giving the feedback that I’m getting from the distribution companies that it still needs to go up further. The question now is- how much further and for how much longer,” he noted.

Ladipo explained that in a situation in which government, for instance in trying to stimulate as much investments as possible, the ideal thing should be to raise tariffs quite a lot so that the whole value chain is fully funded.

But he countered this option as not being ideal in a situation like Nigeria where so many inefficiencies exist in the value chain which would not make sense raising tariffs without equivalent service delivery.
“So you are in another chicken and egg situation. People want the service first, and then they will pay but in order to get the service, you need to pay.