Last week, Vice President, Professor Yemi Osinbajo, became the highest-ranking government official to back the calls for hike in electricity tariff. In this report, Adeola Yusuf examines at the VP’sstance
Vice President Yemi Osinbajo penultimate Monday urged Nigerians to brace for a new regime as a higher electricity tariff has become inevitable. Before the VP’s statement, most of the government functionaries and stakeholders in the power sector have been evasive over theirs or Federal Government’s stance on power tariff hike; nobody appears ready to offer his or her head to be used for breaking of the proverbial coconut.
To the nation’s number two citizen, however, there is no question at all about the tariff increase. The only caveat however, according to Osinbajo, who spoke at the Sixth Presidential Business Forum held at the old Banquet Hall, Presidential Villa, Abuja, is that the government was not going to implement the tariff increase now but was working towards cleaning the electricity value chain.
Osinbajo is not alone in the call for higher tariff for power. The trade association for investors in power distribution – Association of Nigerian Electricity Distributors (ANED), particularly became excited by the VP’s statement.
Throwing his weight behind the Vice President over his comment on power tariff review, Director of Research and Advocacy for ANED, Sunday Oduntan, said: “Tariff needs to be adjusted to be cost reflective.”
He told New Telegraph when he led a team of ANED officials including ANED’s Technical Specialist, Akin Akinpelu; Project coordinator, Mayo Fadelu and Project assistant, Bimpe Amure, to the headquarters of this newspaper that in the alternative, “a subsidy must be put in place to address any gap between the cost of energy and the suppressed tariff.”
Electricity consumers led by the Manufacturers Association of Nigeria (MAN) and Network of Electricity Consumers Advocacy of Nigeria (NECAN) have however, spat fire as the Federal Government commenced the process for tariff hike through major review of Multi-Year Tariff Order (MYTO) process.
The government had, through its agency, the Nigerian Electricity Regulatory Commission (NERC), on June 7, given a one-month notice for major stakeholders to feed it with their positions on the plan to change the period of tariff review from every five years to monthly or quarterly “in order to reflect current economic realities.”
President of MAN, Dr. Frank Jacobs, said on the sidelines of a stakeholders’ meeting in Lagos, that any move to review the tariff would worsen the woes of Nigeria’s economy, which is already suffering from 95 per cent tariff increase in 13 months.
Speaking through Chairman, Economic policy of MAN, Engr. Reginald Odiah, Jacobs told this newspaper that his group, which forms the larger chunk of the Maximum Demand Customers, was contacted by NERC and they completely objected to any review of MYTO.
He said: “What we know, which we want them to know is that our budget is done yearly and any attempt to change the tariff of electricity to monthly or quarterly period, will affect our budget and worsen the harsh economic situation being faced by our members and the generality of Nigerians.”
MAN, which has membership strength of 3,500, he explained, is yet to recover from the last tariff hike, stressing that the planned review would chase out more manufacturers and drastically reduce their number in the country.
Stating that cost of power for manufacturing is exorbitant in Nigeria, the MAN boss said that China spends less than 10 per cent of its production cost on electricity, while its members spend 40 per cent of their production on electricity.
He said: “Utilities supply is very weak, there is unstable power. Most factories and in fact, all factories in Nigeria use alternative source as the main source of power supply, but use the grid power as backup.
“We as consumers have lost total confidence in NERC. What we pay as electricity bills is outrageous, it doesn’t make any sense! The electricity reforms that we clamour for has failed. We think that the government is not doing enough. There is a need for NERC to get all stakeholders in the electricity value chain.
“We will jump at any efforts to improve electricity in Nigeria. This present state of supply is killing our businesses.”
Chairman, NECAN, Chief Tomi Akogun, corroborated MAN’s view.
Akogun, who alleged foul play in the perceived foot-dragging by Distribution Companies (DISCOs) to meter all their customers, maintained that the hike in tariff, if allowed to sail through, would worsen the hash economic situation facing Nigerians.
He said: “Now NERC is planning MYTO 2017 to introduce monthly review. This will have negative impact on our economy. This means the producers cannot even know their cost. It will further worsen Nigeria’s status as a terrible country for investments.
“We have about 40 per cent consumers metered. Over 60 per cent consumers, who are not metered based on faults that are not from them, will suffer this great injustice.”
Blaming deficit on tariff
Already, Oduntan said, the power sector’s revenue shortfall has hit N892 billion, worsening liquidity problems rocking the Nigeria’s power sector. Based on this humongous deficit, the discos, he maintained, suffer N36.42 deficit on each kilowatt of electricity they distribute.
“The current cost of electricity is in excess of N68 per kilowatt. When we get the invoice from NBET, we are only allowed to sell the same product for N31.58kobo. If I buy the product for N68 and I am legally allowed to sell at 31.58k, how can I give pre-paid meters,” said.
Besides, he quipped, “How do we also factor in the running cost. We are saying that the tariff is non-reflective. It does not reflect the whole cost of producing electricity down to the end users. I am being made to buy at real cost but not being made to sell to consumers at real cost and people complain about estimated billing. Also, the approval of payment of N26billion MDA by the government with N67billion is yet to vetted.
“However, it is noteworthy to point that, not a dime is coming to the Discos as government has proposed to do a net-off aggregate debt to NBET.”
Raising issue on the sustainability of the business, Oduntan said; “We have been hovering round this issue since November 2013 because we have not gotten it right. Once we don’t get the figure right, the business cannot be sustainable.”
On the how N50 billion Capital Expenditure (CAPEX) fixed by the government is impacting the businesses of investors in the power distribution sub-sector, Oduntan said; “If the allowable capex for all capital expenditure is only N50billion, it means that you can’t spend more then this. Anything thing outside that, you cannot spend outside the allowable capex and we are saying that the allowable capex is not even enough to buy meters alone, talk less of fixing transformers.
“Remember we don’t fix the price of what we sell, but the NERC. What we are saying is that the calculation is wrong. We can’t run the system like this. You can’t fail to factor in all that is required to make the sector open.”
In the pipeline
Meanwhile, the Vice President appeared to be fully aware of the problems that needed to be tackled before the implementation of the new tariff regime. According to him, the N700 billion Payment Assurance Guarantee (PAG) set aside by the government was payment to ensure uninterrupted payment for gas and liquidity in the power sector.
Osinbajo said the PAG was to fund a smooth transition “from where we are to a much more market-determined policy for electricity.”
He also disclosed that President Muhammadu Buhari has directed that a committee be set up to explore the use of government’s intervention funds in agriculture.
“I’m chairing a committee to look at how to not only use intervention funds but how to monitor the use of intervention funds,” Osinbajo said.
He explained that the idea was to ensure that intervention funds go to the right persons.
Stressing that the government would not bring down interest rate overnight, he said: “The way out is by some kind of intervention and that’s what the President has asked that we do.”
Taking the fight to Fashola
Going beyond the financials, the Federal Government, ANED demanded, must bar the Minister of Power, Works and Housing, Babatunde Fashola, managing directors of the 11 Discos in the country as well as major stakeholders in the power ministry from using generators.
“All those in charge of power should be barred from using generators; minister of power, Permanent Secretary, ministry of power, Chief Executive Officers of all power Generation companies (Gencos) and distribution companies (Discos), all of us must be barred from using alternative source of power.
“If we are all on the grid and have no access to generators, we would act immediately we discover power outage in our areas. We all know who to call when there is no light and I believe that we would act accordingly if there is no alternative source for us to bank on,” Oduntan said.
Cost reflective power tariff will guarantee improvement across the power value chain. The vice president, however, did not highlight what government is doing on metering, incessant collapse of the national grid as well as well epileptic power supply. Therefore, any increase in the power tariff without adequate and sufficient metering of customers would amount to corruption; sheer fleecing of the poor customer to make the wealthy investors richer.
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