‘Regulatory inconsistency, tariff mismatch worsening Nigeria’s power sector woes’
… analysts call for resetting of electricity market
Nigeria’s power sector’s poor performance six years post- privatisation has been largely linked to regulatory inconsistencies, alongside tariff mismatch, which most industry watchers identify as key factors militating against the progress of a sector that is at the heart of Nigeria’s industrialisation journey.
Industry watchers have further attributed the general inefficiency in the sector to lack of appropriate price regime for the sector, and weak infrastructure investment on the part of the Discos.
“I can tell you that in power sector today, the retail price is far more lower than production cost. If the selling price is lower than the buying price, so as distributors, if the cost I am selling electricity is lower that than the cost I am allowed to buy, that is selling at a lost. This is fundamental economics theory, and it is fuelling inefficiency of the sector,” Sunday Oduntan, executive secretary of Association of Nigeria Electricity Distributors of Nigeria, told BusinessDay.
According to Oduntan, “The consequence of this huge shortfall is inefficiency of the sector, because efficiency is largely linked to pricing. Secondly, this is why you see communities contributing money to repair their own transformer, and people buying their cables, which they are not supposed to do. This is because the entity that should carry this load, cannot carry it amid the huge shortfall, and inappropriate pricing.”
By 2005, the extant laws than govern the power sector came into effect, which is the Electricity Power Sector Reform Act, while empowering the regulator to enact laws that govern and guide the sector.
In the regulation, there is an establishment of a multi-year tariff order, which ought to factor in exchange rate differentials, inflation rates as well as lending rates to reflect the appropriate price regime that ought to move the sector forward.
BusinessDay findings reveal that the inability of the regulator to effect a Multi-Year Tariff Order (MYTO) since February 2016 had resulted in the accumulation of over N1.4 trillion shortfall in the nation’s electricity market.
“The MYTO is a legal directive and ought to be reviewed every six months.
“In the MYTO, there is a requirement for what is called minor review of the tariff. That should happen every six month, it may interest you to know that the current tariff that we have came on board on February 4, 2016, and there has never been a single minor review,” Oduntan said.
The minor review would have to consider the power generation level in the country, inflation, foreign exchange, lending rate and other index, he said.
He said anything short of a six monthly review period for the sector would not be ideal, adding that records showed over N1.4 trillion had been accumulated as shortfall in the value chain as a result of non-review of tariff since February 2016.
Coming on the heels of this development, power sector analysts have called for the resetting of the power sector market by the Federal Government to get liquidity back to the sector, since the balance sheet of the Discos, Gencos and gas companies and key players in the value chain are all in negative, as they have individual debt the market is owing them.
”The debt profile is widening everyday, including the just finished N701 billion Federal Government’s intervention fund. Pointing fingers is not the option, since we need to get liquidity back to the sector. In so far as the sector is this way, the balance sheet of the Discos, Gencos, gas companies are all in negative, we cannot make any headway,” Chuks Nwani, an energy lawyer and power sector analyst, told BusinessDay.
The energy lawyer insisted that for the sector to make meaningful progress amid threatening negative balance sheet and poor delivery to consumers, the government must reset the power sector market to enable a level playing ground for industry players as well as open up the sector for increased investments.
Joy Ogaji, executive secretary of the Association of Power Generation Companies (APGC), told BusinessDay that the Federal Government must have the political will to ensure the right things were done in the sector.
“What we lack is the political will. Now, we have a new government, which is also the previous government. Let us assume that the first four years are more of learning the curve. They must do the right thing, and the known. The sector is running at lost, and there must be a new way forward,” she said.
Suggesting way to solve the liquidity constraints in the sector, he said, “The Discos must be made to be liquid enough to enable flow in the sector. Even if they say consumers are not paying cost reflective cost, the ones they are supposed to collect on the current approved rate of N35, they should pay the one they are collection 100%.”