• Wednesday, April 24, 2024
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BusinessDay

NERC and tariff hike: When a regulator is snookered by DisCos and loses its way

Businesses pay more for ‘darkness’ as power outage persists

In Nigeria, they say there is no smoke without fire. And so, when the speculation began days ago that the electricity tariff was going to go up, Nigerian electricity Band A customers did not have to wait for too long before being slapped with a hike of more than 200 percent. Curiously, this increase was announced by the regulator, NERC, which has been snookered by the power distribution companies.

Today, the regulator is failing most at regulating and appears busy doing what the discos (which are commercial entities) should be doing. The DisCos should be the ones announcing any tariff increase.

This tariff increase will cause anger across the country but will offer no path to improved power supply. It will leave more cash to those plundering and mismanaging the DisCos by way of higher allowances for managers of DisCos, more first-class or private jet flights, and much more room for armoured jeeps for themselves and for their spouses.

Q: “Today, the regulator is failing most at regulating and appears busy doing what the discos (which are commercial entities) should be doing. The DisCos should be the ones announcing any tariff increase.”

There is no reasonable person who will say that companies should not be allowed to recover their genuine costs when setting prices. But it should be expected that the regulator must first conduct an open book review of all the costs of DisCos before sanctioning any tariff increase. Can NERC say it has done any such cost review in a transparent and professional manner to take out the pork and other fraudulent schemes that have been perfected by the operators?

The last time any open book review of the operations of DisCos was done was for the period 2015–2019. This review was paid for by a UK agency, and what is worrying is that the regulator and the government have sat on the report of this review. Why is it that the result has not been released to the public, and why has NERC failed to conduct any thorough investigation for the period 2019–2023?
Presumably, the regulator has said the new higher tariff will apply only to customers in Band A. This cannot be because the regulator has satisfied itself that customers on this band get power supplied to them for the stipulated 20 hours daily. It is the duty of the regulator to check the DisCos one by one and to ascertain that they qualify for this increase. It is on record that not a single DisCo has been penalised for failing to meet its obligation to the Band A customers. It is another reason to suspect that the regulator has been put in the pocket of the DisCos, who have been taking Nigerians for granted.

Thirdly, how do you simulate competition in the sector if the same tariff increase has been awarded to every DisCo without separating those who merit it from those that do not? Nigerian Discos claim they lose up to 41 percent of their revenues, and this loss is blamed on tariffs that cannot be collected. By awarding a uniform increase to all the DisCos, the regulator is rewarding incompetence and ad behaviour. The result will be more uncollected revenues.

And why is NERC afraid to level up with the people it is meant to serve? Why has the regulator failed to properly communicate this increase and the basis of the increase? Has NERC determined that N225/kWh is the full economic cost of the DisCos? If it is the full economic cost, how was this arrived at? If it is not the full cost, what is the full cost, and who is to cover the balance? The ambivalence of and surreptitious manner in which this increase is carried out leaves suspicion to say the least.

It is claimed that 50–60 percent of electricity costs in Nigeria are dollarized. So, what happens if the naira appreciates further? Will there be a tariff reduction?

Finally, is it not the case that many of the industrial and commercial customers have all left the grid and are now generating their own power on account of the failure of the DisCos? Does this puncture big holes in the theory of cross-subsidisation? That the big industrial consumers are fleeing from the grid is a measure of the incompetence of the DisCos, and by awarding this indiscriminate tariff hike, the regulator is simply rewarding the DisCos for their incompetence.