New tariff: Consumers begin April 1 countdown

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The scheming of the DisCos and Nigeria Electricity Regulatory Commission (NERC) has kept the customers that provide their transformers, replace their cables and sustain their unending payment of estimated bills for an unyielding darkness guessing. JOHN OFIKHENUA, however, reports that the stakeholders are counting down to April 1 with uncontrollable angst.

There is no doubt that the Federal Government is at a fix over what to do with the 11 electricity distribution firms. It is no longer single-minded about who should run the firms. The sign of the government’s confusion is evident in the discordant tones of its different agencies in recent times. While the question of whether the Federal Government should reverse the privatization of the power distribution firms came to the fore at different forums, owing to the poor performance of the companies, the suggestions of the different heads of government organizations sharply contrasted one another.

Last week, the growing state of the confusion worsened as the Minister of Power, Sale Mamman called for the revocation of the entities’ licenses. He courageously urged the managements of DisCos to accelerate their performance or quit the business.

 

Lowering capacity

His annoyance was that the power firms lack the requisite technical and commercial capacities to reduce their losses. The minister, who was worried that although the sector could generate about 13,000mw, transmit 7,000mw and regrettably distribute 3,000mw, sought a plausible alternative solution to the present investors in the distribution firms that could not rev up power supply to their customers.

His words: “If they are ready to continue, fine but if they are not ready to continue maybe they should give way to whoever that is ready to come and invest. We are asking the government to review and see if they are capable, but if they are not capable, they should give way.

The minister insisted that the DiScos should determine their readiness to continue the operation of the firms optimally. He said “if they are ready to continue, fine, but if they are not ready to continue maybe they should give way for whoever is ready to come and invest. We are asking government to review and see if they are capable but if they are not, they should give way.”

The confusion that has engulfed the decision makers of the power sector has continued to rage on with the Director-General of the Bureau of Public Enterprises (BPE), Alex Okoh holding a different view of the privatisation exercise and need for its review.

According to him, the issue with the distribution companies is not simply the question mark on their technical and commercial capacities but that of lack of cost-reflective tariffs.

He said since the government was yet to implement a rate that is proportional to the cost of electricity, there should be provision for subsidies for the DisCos. This is at variance with the position of the minister, who wants subsidy removed.

It is uncertain what the outcome of the Presidential Initiative on the review of the DisCos would be. The hope that the BPE captured for a workable distribution network is the solution that the initiative would proffer.

In addition, Okoh stated that the World Bank was to release $2 billion to address power distribution challenges in Nigeria.

He said: “I am not taking away the fact whether the DisCos lack capacities. We need to address the price structure of the utilities or come up with some subsidies.

“The problem is not about the privatisation of the entire power sector value chain. The problem is the implementation of the design of the reform of the power sector. What I will not advocate is the renationalising of the power sector.”

Analysts in the power sector who would have cheered the minister up for mulling a review of the privatisation of the DisCos were disappointed after all. They said the solution which Mamman seemed to have suggested was the handing over of the companies to a German firm-Siemens, which he had denied. Recall that a day after the Federal Executive Council meeting, the minister issued a rejoinder debunking signing any Memorandum of Understanding  (MoU) to handover the electricity distribution services to Siemens.

His Special Adviser on Media, Mr. Artimas Aaron said the minister said the MoU was only on how the Siemens would scale up power distribution and transmission up to the level of generation in the electricity market. The refutal quoted the minister as saying that “so, we have submitted our proposal to the government on the problem of distribution and it is left to them to decide what to do. The government only signed a memorandum of understanding with the German company, Siemens, on how to leverage generation with transmission and distribution.”

I am not taking away the fact whether the DisCos lack capacities. We need to address the price structure of the utilities or come up with some subsidies.  The problem is not about the privatization of the entire power sector value chain. The problem is the implementation of the design of the reform of the power sector.

Analysts in the NESI seem to have taken the comments, irrespective of their contrasting tones.

For instance, the news of World Bank’s $2 billion which the BPE announced did not trill reporters because, according to them, the NESI that has a robust record of over $1.6 billion from multinational development agencies has little or nothing to show for it.

Meanwhile, the President, Nigeria Customer Protection Network and former Technical Investigative Panel on Power System Collapses, Kunle Olubiyo who spoke to The Nation on phone, urged the Federal Government to address the governance structure in the DisCos.

According to him, the most potent measure for checkmating the DisCos would be to compel them to quote their stakes in the Nigerian Stock Exchange. With this, the shareholders would help to make the firms live up to expectation. He observed that the NERC “needs to show more commitment in its approach. They (NERC) are not assertive. NERC has institutionalised inefficiency by asking the DisCos to remit whatever they can.”

Alluding to its fence-sitting approach to whether the new tariff would become effective on April 1 or not, he noted that the commission lost its voice as soon as there were outcries over the announcement of the recent review.

Whereas that the DisCos are not mincing words about their preparation for the implementation of the new tariffs on April 1, the NERC has since resorted to using “directive” and “consult” interchangeably in order to conceal its position on the April 1 take off of the new tariffs.

 

Countdown

As the DisCos count down to the date, different shades of concerns about the 2015 Extra Ordinary Multi-Year Tariff (MYTO) Review keep mounting. While some power distributors are of the view that the new rates are still not cost-reflective, others are on the verge of going bankrupt. Those that have taken to lamentation of unfavourable business environment have refused to quit. Stakeholders had expected the DisCos to come forth for their investment fund since they are yet to breakeven but they lacked the courage to do so.

There have been indications that they benefit from the present state of the firms despite the public outcry.

The commission is engaging in consultations (sampling opinions) after stating that although the new tariff takes effect from January 1, the customers will start bearing the new costs by April 1. The Federal Government, according to the NERC, is to pay for the shortfall between the two dates.

In other words, the new tariff has started counting whether the Federal Government pays it or consumers bear the cost, government money belongs to the public.

On the tariff, the Kano Electricity Distribution Company (KEDCO) in its Performance Improvement Plan (PIP) to the commission expressed its reservation about the new rates. The firm opened up that it is not cost-reflective. It buttressed its position with its proposed figure of N62.94/kWh in 2020. According to the document which covers from 2020 to 2024, “to achieve the PIP, it is expected that tariffs would be higher than the current MYTO Minor Review tariffs set by NERC. The anticipated average cost reflective tariff is N62.94/kWh in 2020.”

The Yola Electricity Distribution Company (YEDC) has different worries besides the plausibility of the new tariff. The power firm complained that even the new tariff -NERC introduced the Interim Rules setting out, inter alia, the tariff December 2019 Minor Review MYTO 2015), is replete with a lot of inaccuracies which make it not cost-reflective.

Deficiencies

The deficiencies in the new rates, according to Yola DisCo, are that it contains incorrect initial level of ATC&C losses and incorrect number of customers. In its own PIP, the YEDCO said “the electricity tariffs have been recently updated by NERC (December 2019 Minor Review MYTO 2015), but they contain a series of inaccuracies that make them not cost-reflective. Deficiencies include an incorrect initial level for ATC&C losses and incorrect customer numbers, among others.”

Owing to the inaccuracies, the firm insisted that “together, these issues mean that tariffs have not been, and still are not, cost-reflective for YEDC. This has prevented the operational expenditure and investment that was planned in the original Business Plan being realised.”

In the case of Ikeja Electric (IE), the “objective for the extra-ordinary tariff review of MYTO-2015 is to ensure Ikeja Electric adjusts its tariff in line with the commission’s directive that current average allowed tariff shall be grossed-up 50 per cent from April 2020.”

The firm, according to the Chief Executive Officer, Anthony Youdeowei, however, noted that as a result of the 50 per cent tariff increase, the target is also to raise the average tariffs from the current level of 27.30 N/kWh to 40.95 N/kWh.

The Association of the Nigeria Electricity Distributors (ANED) that spoke for the DisCos had been of the view that “in view of the foregoing, we state emphatically that there shall be no change or increase in the existing Electricity tariff until April 1, 2020 when the new adjusted tariffs shall begin to gradually reflect the dynamism of our macro-economy.”

But since tariff hike implementation has been opposed, the ANED Executive Director, Research and Advocacy, Chief Sunday Oduntan,  was circumspect on the view earlier this year.

In a telephone chat with The Nation last week, he noted that the power firms were yet to get the go ahead from the commission. He, however, admitted that the power distributors will kick-start the implementation of the new tariff when the commission gives the directive.

His words: “The DisCos cannot do anything until the regulator says so. The regulator has not asked us to charge the new tariffs. The (NERC) has the final say. Once the (NERC) say we should start, we will start charging.”

As the scheming of the DisCos and commission which has kept the customers that provide their transformers, replace their cables and sustain their unending payment of estimated bills for an unyielding darkness guessing, the stakeholders are counting down to April 1. Thus, the commission has a few weeks to take the decision.