• Thursday, June 13, 2024
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The Unending theatrics of Nigeria’s Electricity Tariff Structure

electricity-tariff

Nigeria’s electricity sector is at a precipice, and the outcome of negotiations on a new electricity tariff structure is key to determining its future. However, lack of proper coordination and leadership on the part of the government and key institutions in the Nigeria Electricity Supply Industry (NESI), and poor engagement with each other and other stakeholders are impeding factors. These have negative impacts on achieving Nigeria electricity sector transformation and an effective and viable regional West African Power Poll (WAPP).

Earlier this June, the World Bank approved a $750 million loan facility for Power Sector Recovery Operation and a month later, the Federal Government approved $24 million as part of its 15 percent counterpart funding for the $2 billion Siemens Nigeria Electrification Project (NEP) under the Presidential Power Initiative.

One thing was definitely going to happen after these financial commitments – an upward review of the electricity tariff to reflect current generation, transmission and distribution realities which haven’t been reviewed in the last 5 years.

At least in principle, the increase in tariff would help rescue the NESI from financial insolvency, reduce government’s electricity subsidy which stands at $4.72 million daily, and guarantee the viability of the World Bank and Siemens projects. If a cost reflective tariff will ever be negotiated successfully, effective revenue collection will continue to be a challenge as a result of incorrect billing and theft.

This year alone, as with previous years, the take-off of a cost-effective tariff for the NESI has suffered three setbacks. The first was on March 31 when the regulator – Nigerian Electricity Regulatory

Commission (NERC) postponed the April 1 take-off to July 1. The second was on June 29 when the National Assembly postponed the July 1 take off and suggested 1st quarter of 2021 as take-off. This was after it had earlier on May 20, criticized the reforms of the electricity sector and demanded that the Executive postpone implementation of the cost-reflective tariff.

Just before the intervention of the Legislature on June 29, an incident took place exemplifying the lack of government leadership and coordination between key stakeholders and government in solving NESI challenges.

On June 28, the Association of Nigerian Electricity Distributors (ANED) had issued a statement to express its displeasure about an earlier directive received from the regulator that warned the electricity distribution companies (DISCOS) against mentioning the federal government and the regulator in any communication to their customers regarding the new cost-effective tariff that was to take effect on July 1.

While NERC approved the new tariff structure, it dissociated itself from the responsibility of communicating the new tariff structure to consumers, which may have been for fear of being requited by consumer associations, organized labour and the general public.

As smart as NERC might have thought its action to be, it reflects negatively on it and the government as shying away from their responsibility in ensuring that NESI is steered out of its current crisis. NERC may also have forgotten that the federal government owns 40 percent equity in the DISCOS and has been solely responsible for negotiating several NESI interventions including the Siemens deal that has necessitated the tariff increase without the knowledge and involvement of the DISCOS and other stakeholders.

Another instance was the unclear outcome of the meeting that the National Assembly’s leadership had with President Buhari and his Vice on June 30 for the postponement of the July 1 cost-effective tariff.

At the end of the meeting, the leaders of the National Assembly while briefing newsmen, emphasized that the meeting was for the Legislative and Executive to have an aligned policy direction especially for important policy issues, and expressed their conviction that Executive listened and agreed with them on the need for a postponement.

Only 7 weeks after their meeting, the President approved a new tariff structure that took effect on September 1 which the regulator referred to as a service-based tariff that classified consumers based on the minimum number of hours of electricity supplied daily.

Almost 28 days into the service-based tariff which was already facing challenges, specifically with calculating the number of hours, time of service and service interruptions that occur daily in order to accurately charge customers, the federal government again suspended the new tariff structure due to pressure from organized labour.

To meet the demands of organized labour, the federal government constituted a technical committee comprising of different ministries, departments, agencies and organized labour. I would have thought that the federal government would constitute a joint technical committee which includes the legislature in particular, if the committee’s recommendations/resolutions will endure.

I wouldn’t be surprised if at some stage in the resolution of the tariff crisis, the legislature demands an overhaul of the entire process or refuses to approve funding for further NESI reforms. The Nigerian government needs to learn to be more open and inclusive with stakeholder engagement if it ever hopes to start solving many of Nigeria’s socioeconomic challenges.

Okafor is a Science Policy Research Unit (SPRU), University of Sussex trained energy, environment, climate change and sustainability expert and Principal Partner, Change Partners International. [email protected].