Ripples over new electricity tariff

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12393850_1173907979303459_1226514229_n           The new electricity tariff finally takes off this February amidst mixed reactions. However, the issue remains whether the latest hike would put an end to epileptic power supply in the country, writes Olisemeka Obeche

The new electricity tariff which took effect from February 1, 2016 in Nigeria connotes different strokes for different folks. From the official regulator to the operating firms and industry players down to consumers in both the residential and industrial areas, the new tariff template carries different burdens, responsibilities and expectations.

For instance, while the new tariff was widely celebrated within the realm of the regulatory authority as the much awaited linchpin for unlocking the investment potential and transformation of Nigeria’s power sector, the industry players and consumers are still viewing it with suspicion or optimism.

The Minister of Power, Works and Housing, Babatunde Fashola explained that the new tariff is aimed at correcting the whole system in the entire value chain of the power sector. He said that it was the most viable means of achieving steady power supply in the country. The acceptance of the new tariff order, he noted, would also galvanise the sector and boost investments, which would in turn usher in more development in the country.

According to Fashola, the power sector is a business no one would want to come into it if the cost cannot be recovered. “That is where the issue of tariff comes in. So, tariff review is not necessarily government or NERC delivering an ultimatum of take it or leave it. That’s not it; that’s not the situation. It’s a practical choice and as a new administration, this is the first major policy that we have made. So, all of what has happened was inherited; the options before us are start from the beginning or repair and manage what you have. It’s like a chess game that you did not start, you are now in the middle, somebody has played the game to the half way and you must continue,” he explained.

The minister, however, noted that if consumers willingly accept the “new tariff regime as now reviewed to stay, instead of two-year tariff changes we now have a ten- year tariff.”

Dr. Anthony Akah, acting chairman of the Nigerian Electricity Regulatory Commission (NERC) said that revenue to be generated from the new tariff would enable the power distribution, generation and transmission companies to acquire needed infrastructure which lack of cost-reflective tariffs had hindered in the past. With the new tariffs, Akah said “they would not have any excuse for not delivering on agreements they entered into with the government”.

The regulatory body hopes that the new tariff order, together with methodology and pricing framework, interconnectivity agreements, grid and standard codes it had installed so far will rein in more investments in the industry.

The Commission also believes that the new tariff plan which emerged through multi-faceted negotiations was the best thing to have happened in the industry after many decades of power reform efforts. “The new tariff regime is the result of a transparent, rigorous and credible rate review process. The tariffs will lead to greater reliability in the provision of electricity. More people will progressively have access to the grid, more meters will be deployed and the need for self-generation would be gradually reduced,” NERC declared in its official statement.

Dr Sam Amadi, immediate past chairman of NERC who led the commission through the crucial reform stage before proceeding on retirement, argued that the new tariff offers a win-win deal for all stakeholders in the industry. According to him, while the tariff would impose extra cost burden on consumers, it will also lead to better service delivery. “The consumer is paying more to get more value. If we have proper tariff that allows for investment and incentive for efficiency, it will ultimately work for improved services by creating commercial viability,” he said.

He explained further: “The first and second years, the tariff by consumers will not pay fully for the investment DISCOs make for service delivery. But, in the third and fourth year, they will be able to have full recovery of that cost, as the tariff and costs become fully aligned. NERC has benchmarked the tariff within a certain threshold, so that the increase by the DISCOs is reasonable and fair.”

Amadi urged customers to pay their bills even as he said that DISCOs will not be guaranteed revenue without service. Under the new framework, he said, “the revenue of the DISCOs is now tied to 100 per cent availability of electricity supply. If for its negligence a DISCO allows its transmission line to collapse, it would lose revenue per kilowatt hour for the period that line remains unfixed. This is one of the biggest things NERC has done. It is a big game changer in the electricity market.”

However, the major challenge before the regulator remains making sure that the power firms meet obligations of metering their customers and stop over-estimation of bills imposed on them by the tariff framework. Many analysts and customers have expressed doubts on the ability of both the power firms and the regulator to meet the metering obligations.

“This is not the first time we are hearing that the power firms have been given directive to meter their customers which would later end up unfulfilled, what is the guarantee that they are going to implement it this time around?,” asked Mr. Charles Udeh, a businessman.

Ibukun Olajide, an energy analyst believes that only strict enforcement of the rules could make the new metering order succeed. “Definitely, the new order to issue every customer with prepaid meter is a wise one, but it will take a strict enforcement to ensure that the target is achievable within the time frame, otherwise, we may still have higher percentage of customers getting estimated bills few years down the line,” he said.

But Amadi pointed out that the new tariff order was designed in such a way that it would be in the best interest of the electricity firms to issue meters to their customers to minimize loses, because without the meter the customer pays less. “If you don’t meter your customers, it is at your own risk; because if you bill them and they dispute that bill, they don’t need to pay for that estimated billing anymore, they would pay for the historic bill that they think is certain. If today, I’m billed N200 and I pay and tomorrow they issue me N4,000 and I dispute, I have to go to the NERC dispute system and once I go there, I am not bound to pay (the estimated bill) anymore,” he explained.

On whether an aggrieved customer would be sanctioned, Amadi said: “when you are disputing, nobody should disconnect you because you are protected to pay what you have been paying historically. In other words, we are pushing back the incentive on the Discos to meter their customers. If you don’t meter, then you run the risk of losing revenue.”

Mixed reactions

Expectedly, the new tariff order has continued to generate ripples among electricity consumers across the country. While key industrial customers have voiced their concerns through umbrella bodies such as the Organised Private Sector (OPS), the Manufacturers Association of Nigeria (MAN) and the Lagos Chamber of Commerce and Industry (LCCI) with labour union threatening industrial action, most residential customers have kept their views close to their chest while waiting for the commencement of the new tariff regime.

For instance, MAN has already raised objection to the new tariff template, arguing that implementation of proposed 45 percent tariff hike would force some manufacturers out of business. Dr. Frank Jacobs, President of MAN said that the new tariff will be a huge burden on manufacturers. “Do you know how much the 45 per cent increase in tariff translates to in Naira in a week, month, quarterly, and yearly? It is a lot of money, and I do not think the sector can cope with this,” he said.

The Director-General of Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, also said that the new tariff would worsen the condition of operators of the organized private sector in the country, if urgent measures are not taken to address the problems bedeviling the power sector. According to him, despite the removal of fixed charges by the commission, “consumers are still groaning under huge cost of accessing electricity for production activities.”

Nevertheless, Yusuf noted that it is difficult to fault the position of the regulator and the Minister of Power over the quest to make electricity tariff cost-reflective in order to make investments in the sector attractive and sustainable, especially in the light of the clamour by the citizenry for a private-sector driven power sector.“In any event, it will still be cheaper (even with the review) than individual firms or households providing electricity through generators powered by diesel, petrol generators or LPFO. However, electricity consumers should not be made to pay for inefficiency or corruption costs,” he said.

The Chairman, House of Representatives Committee on Power, Hon. Daniel Asuquo, equally expressed concerns over the tariff increment. He said the lawmakers’ decision to demand for its suspension for further review has not changed, despite NERC’s insistence on going ahead with its implementation. “Our advice was that there should be appropriate consultation with the Nigerian populace and clear agreements entered with the DISCO’s (distribution companies) and other critical players in the value chain. Nigerians should know what investments have been done by the new owners and what the expectations are if the tariffs are agreed, with time lines for delivery of better service,” he said.

The Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) have equally rallied the civil society groups to protest the new tariff. The labour coalition has threatened a nation-wide showdown. “If you are an electricity consumer and you are not happy with the bills electricity companies serve you, you are invited to join this protest rally”, NLC President Ayuba Wabba said while announcing the planned protest.

Similarly, those on the class of residential electricity consumers who spoke to TheEconomy expressed worry that the new tariff may further compound the prevailing economic situation in the country. “Everybody is worried about this new tariff. It will affect us individually and collectively because apart from setting aside more money for electricity bill at the end of the month, it will also affect the price of goods and services across the country,” Mary Nkem, an Onitsha-based teacher told TheEconomy.

Miss Ego Nwankpa, a real estate sales representative, said that imposing a 45 percent tariff hike at a time customers were groaning under poor power supply, economic recession and high unemployment is not the ‘change’ most Nigerians voted for. “For government to justify the 45 per cent increase in tariff, there must be an improved power supply in the country, remarkable improvement in economic activities and job prospects so that consumers can be able to afford the huge bills,’’ she argued.

Jude Jideofor, a metal fabricator also lamented the likely impact of the new price regime on artisans. “It is going to affect most of us whose work depends on power because apart from relying mostly on generator for our works, we are now expected to pay more for light,” he said.

Mr. Precious Nwaneshiudu, a telecoms expert was, however, not perturbed by the tariff hike; instead, he expressed worry over the ability of the power firms to meet up with the mandate of metering and improve service delivery.

On the flipside, some commentators have equally harped on the need for electricity consumers to embrace the new tariff in a bid to have adequate power supply. Mr. Yomi Kolawole, Managing Director of Energy Solutions Ltd, rallied support for the new tariff, arguing that it “will enable the DISCOs to replace obsolete equipment and non-functional transformers and cables.

Mrs. Rose Sheldas, a Lagos-based lawyer, also appealed to consumers to give the government and the new tariff benefit of doubt. “Yes, most Nigerians have every reason to suspect that this new tariff is going to hurt us but we must not live in pessimism. This is a new regime and they too deserve to be given a fair chance to try out their own strategy. If we consider the cost of fueling generators monthly, we will understand that it pays us more to support any effort to address the power sector crisis,” she said.

Abdulfatai Adelabu, a FESTAC-based landlord also believes that: “If we should consider the amount of money spent to fuel our generators on daily basis, we will see that it is better to pay more on regular electricity supply than to pay what we were paying without regular light. Let us allow the new tariff to address the challenges of investment.”

New tariff template

Based on the Multi-Year Tariff Order approved by NERC last December, electricity distribution companies will from the next billing period this month (February) be charging electricity consumers an average of N9.00 per kilowatts of electricity they consume and no longer levy monthly fixed charges.

Specifically, residential customer classification (R2) in Abuja Electricity Distribution Company will be charged N9.60 per kilowatts hour while their counterparts in Eko and Ikeja electricity distribution areas of Lagos State and its environs are required to pay N10 and N8 more in their energy charges. The new tariff also prescribed different rates for commercial consumers’ classification under C2 on different networks across the country. For example, commercial customers in Ibadan and Enugu will now pay N12.08 and N13.35 respectively.

“The objective of the new tariff is to enable prudent consumers to save money on electricity bill as they can now control their consumption and not pay monthly fixed charges,” NERC explained. Besides the cost-saving element, NERC claimed that the new tariff regime comes with renewed commitments by the electricity distribution companies (discos) to rapidly improve supply.

The new tariff order also encourages power distribution companies to develop new sources of supply within their franchises to increase the quantity and quality of supply to target customers on a willing buyer willing seller basis. According to NERC, these measures are necessary to improve electricity supply across Nigeria and ensure that the distribution companies are working hard to increase investment that will ensure predictable and ultimately reliable and uninterrupted electricity supply.

NERC also mandates electricity distribution firms to issue prepaid meter to its customers to ensure effective billings. “Henceforth, every disco should meter all its customers. The metering policy will be strictly enforced. For those willing electricity customers who paid for meters under the Cash Advance Payment Metering Initiative (CAPMI) but are yet to be metered within the allowable 60 days, they would no longer be billed under the new tariff regime. The DISCOs will not disconnect them.

“There is zero tolerance for over-billing of customers. An unmetered customer who is disputing his estimated bill would not be expected to pay the disputed bill. He would pay his last undisputed bill as the contested bill goes through the dispute resolution process.

“This is a departure from the old practice which prescribes that customers should first settle the bill while dispute resolution is in process. No electricity distribution company is allowed to connect new customers without metering the customer first. This is to close the wide metering gap of over 50 per cent and reduce high incidence of collection losses in the Nigeria Electricity Supply Industry (NESI).

While the new rates spread across different networks have continued to generate mixed reactions, the removal of ‘Fixed Charge’, a controversial policy component of the past tariff regime that commits electricity consumers to paying an approved amount of money, not minding whether electricity is consumed during the billing period or not has been hailed as welcome development. “It is long overdue (scrapping of fixed charge) because it is obvious that electricity suppliers have taken undue advantage of that policy to the detriment of the industry. It was a big fraud,” Josephine Aina, a caterer told TheEconomy.

 

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