The Nigerian Electricity Regulatory Commission (NERC) approved a new tariff methodology for the electricity Distribution Companies (Discos) in the country. The new tariff took effect from 1 February 2016. The Amended Multi-Year Tariff Order 2.1 (MYTO) 2015 provides a methodology that increases the electricity tariff consumers would now pay by an average of 60%.
Some of the factors that were considered during the regulatory process for upwardly reviewing the tariffs were: (1) level of Aggregate Technical, Commercial and Collection losses;[1](2) Naira-to-US Dollar exchange rate; (3) inflation; (4) generation capacity; and (5) gas price.[2] 
The tariff for residential consumers (in the R2 category[3]) served by Abuja Electricity Distribution Company was increased by N9.60 per kilowatt/hour (kWh). Consumers in the same category covered by Ikeja Electricity Distribution Company have their tariffs increased by N8. Eko Electricity Distribution Company increased its tariff by N10; Kaduna Electricity Distribution Company by 11.05; and Benin Electricity Distribution Company by N9.26.

The Good
Electricity tariff remains relatively low and unchanged for residential consumers in the R1 category.
The new tariff eliminates the concept of a fixed charge. The fixed charge is that component of the electricity tariff that allows a DISCOS charge a consumer a certain monthly sum in addition to the charge paid for actual electricity consumed. Before the new tariff regime, the DISCOS were permitted to charge residential customers a fixed charge of averagely N700 to N800 (depending on the particular DISCO) whether they supplied electricity to such consumer in that month or not.
Under the current tariff the consumer will only pay for electricity consumed. This also means that the DISCOS are not permitted to issue estimated or “crazy” bills as is currently prevalent.
It puts the DISCOS in a better position to support the power-sector value chain. This is because as the principal collection agents for the sector, DISCOS are depended upon to bring in much needed liquidity into the Nigerian electricity-supply industry (NESI).
The Bad!
The microeconomic conditions in Nigeria today seem to be at their lowest ebb since the global economic crisis and resultant cash crunch in 2008 and 2009. The purchasing power of the average consumer continues to drop as the Naira keeps falling against the dollar. There is a marked drop in government spending due to the present administration’s conservative policies and a fall in government revenues.

The tariff increase is coming at a time when the generally economic climate is experiencing a lull. Prices on the commodities markets are crushingly low. The price of crude oil in the international market is presently below $30 per barrel.  But the complicated part is when gas price is considered, since gas is the dominant fuel from which Nigeria generates electricity – 80% of electricity generated in Nigeria is from gas. Gas price is denominated in dollar and except as otherwise provided in agreements with gas suppliers or expressly stipulated by the CBN, the GENCOS will pay for gas in dollar. Despite the fact that gas prices have been low in the international market for some time now, two factors have affected gas procurement for power in terms of pricing. First, the increase in gas price for power generators from $1.80 to $2.50/mmBtu. Second, the exchange rate. Due to the increasing strength of the dollar against the naira, GENCOS will pay more naira per dollar in purchasing gas. Hence, in real terms, gas prices are on the rise for a naira-based cash flow.

The performance of the DISCOS since taking over from the defunct Power Holding Companies of Nigeria do not justify a tariff increase. Aggregate technical, commercial and collectionlosses are still very high. (Though collection losses are not automatically a pass-through cost under the new tariff regime). Ironically, the DISCOS have long taken the position that without a tariff increase, they cannot achieve the Key PerformanceIndicators under the Performance Agreement they signed with the Bureau of Public Enterprises (BPE) upon privatization.  
Electricity consumers will now pay more for the same or less power supply to them. There is even no express guarantee that with any increase in tariff, there will be corresponding increase in power supply. In fact with the gas supply challenges that are once again rearing their ugly heads, electricity supply is in for thorny times.  
The Ugly

The average per capita of national electric consumption in Nigeria is around 145 to 170kWh per annum. But every month, DISCOS bill 10 times more than this rate on the average. This means the annual percapita estimated billing put out by DISCOS is about 15,000kWh, i.e. a hundred times more than what is truly supplied.

So consumers currently pay for ten years’ worth of power supplied in a year. This cannot be acceptable under any guise. In fact some are of the view that the DISCOs are over-recovering revenue shortfalls experienced during the interim period. Hence, the social reaction to the tariff increase is expected to be stratospheric even as the spending power of many is eroding. The social reaction may be more than legal provisions could assuage.
My Opinion
I am of the view that for consumers who are not metered, the NERC should standardize electricity tariff according to a monthly ‘deemed consumption’ for the different categories of customers. It is not the same with what is obtainable today. The current plan only standardizes the rate chargeable per kWh per month, leaving DISCOS with the option of either matching the tariff rates with the consumption recorded by the meters or where the consumers is not metered, DISCOS match the tariff rates with an ‘estimated consumption’.[4]This gives the DISCOS the window to estimate consumption to as much as ten times what the actual consumption would have been, had the consumer been metered. This leeway gives DISCOS a windfall, especially those covering commercial and large cities. So standardizing electricity tariff, in my view, would present a more acceptable approach going forward.
Under the new tariff order, DISCOS are not to charge estimated bills on consumers who are not metered. This is the ideal thing. Instead of estimating bills arbitrarily, DISCOS are mandated to charge the previous amount prior to the estimated bill.
There are challenges with this approach though. First, for new consumers who are not metered, all their prior bills from the first day of connection are all estimated. So for such new consumers, there is no mechanism to determine what they should actually pay pending when they are metered. Second, NERC does not have the manpower to effectively monitor how each DISCOS’s business district bill its consumers. DISCOS’s practices in various business districts usually differ concerning how they generate bills for their consumers. But Lagos DISCOS are clearly more overboard with their billing patterns. Third, the dispute-resolution process is precarious and clothed in uncertainty.[5]
The deemed consumption approach if adopted by NERC, will be more reasonable than the ‘estimated consumption’ approach adopted by the DISCOS.
The Conclusion
In the words of Felix Ayanruoh, a US-trained Nigerian Energy Expert and Regulatory Consultant:
“Quite simply, power generation, transmission and distribution will be a failure if potential investors cannot get fair returns of their investments, as no investor will be willing to invest in the sector. With the new Multi-Year Tariff Order, investment in the Nigerian power sector is now a bankable venture… The unwillingness of governments to raise tariffs in line with costs due to political and labour pressure has led to power reform failures in many economies of the world.”[6]
courtesy newspot.ng

The Presidency, the Minister of Power, NERC, and of course DISCOS, believe that the tariff increase is a necessary evil that electricity consumers in Nigeria must live with. According to one industry insider, the NESI is running out of cash to incentivize new investments and the tariff increase is the most feasible way to react in back-tracking this trend.

At the end of the day, the consumers are required to pay the price without concrete assurances of improved power supply.
Let’s face it. Tariff hike has the good, the bad, and the ugly sides. It is how the stakeholders (FG, NERC, DISCOS, and interest groups) in the industry marry these various sides that will eventually sustain the goodwill in the privatisation process.
One way DISCOS can start pacifying consumers is to take metering more seriously. No matter the tariff, consumers should only pay for what they consume.   

 


[1]Collection losses refer to the amounts billed but not collected by the DISCOS. Though collection losses were set at zero, a DISCO that wishes to pass through certain collection losses to consumers is required to apply to the Commission in accordance with the provisions of the Regulations on Procedure for Electricity Tariff Reviews. The Disco must justify with evidence the portion of the losses to be passed through to consumers.
[2]See Amended Multi-Year Tariff Order 2.1 2015.
[3] A bulk of residential consumers and small ‘home-run’ business fall under this category.
[4]Even as the NERC has clearly said the Discos are not allowed to over bill customers under the new tariff regime.
[5]This is an issue for another day.
[6]Furore Over Electricity Tariff HikeAmidst Epileptic Power Supply’, The Guardian, Lagos, February 6, 2016.

 

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