Saturday, 13 February 2016

ELECTRICITY TARIFF: SUPPORTING THE SURVIVAL OF THE SECTOR

Electricity tariffs have been increased; consumers are complaining and NLC has risen in condemnation of the increase as expected of a grassroots organisation. Their arguments range from wrong timing, fleecing of consumers through estimated billing to the magnitude of the increase. Obviously the stakeholders’ consultations held by NERC prior to the increase did not make any impact. We seek to examine the issues at the stake.

Timing of tariff increase
The main argument against the increase centres on inadequacy of power supply. Consumers clamour for improvement in supply situation before any tariff increase. The argument is not new; it is as old as the reform process and it held sway for some time especially under former President, Chief Olusegun Obasanjo. Erstwhile President, Dr. Goodluck Johnathan, under whose tenure the new tariffs were approved held back on the implementation because of last year’s general elections; clearly it would have been a suicidal political action in an election year.

Tying tariff increase to improvement in power supply is akin to the age-old riddle of the chicken and egg, which comes first? The argument held sway for as long as the sector was owned, managed and funded by government. Government businesses are hardly meant to be profitable especially when provision of critical infrastructure is involved. We must recognise the fact that the game has changed; government is no longer in control; its involvement is minimal – policy formulation and regulation. The regulatory role involves protection of customers’ rights wherein falls tariff review and adjustment.

Aside from other factors, currency exchange rate is a major parameter of the electricity tariffs. Within the last 15 months, the Naira has lost about 50% of its value! The new owners of the GENCOs and DISCOs are still saddled with heavy $ denominated loans with which they funded their acquisitions. A good proportion of their maintenance costs is sourced externally. Unbeknown to consumers is the fact that some of the DISCOs can barely pay salaries, talkless of procuring items like transformers. Many of them complain of “funding gap” because the old tariffs were not economical. Given such a scenario, one wonders how improvement in service delivery can be achieved. If the timing is wrong now, when will it be right?

Billing issues
Consumers complain of being charged for electricity they do not consume. There are those who go for months without supply and yet they receive bills every month, thanks to inherited arm-chair tactics of almighty NEPA/PHCN which found it convenient to send estimated bills ad infinitum. New brooms are supposed to sweep cleaner. The DISCOs have failed in this regards, they ought to pay more attention to customer satisfaction. If properly handled, estimated billing is not a bad practice so long as it is based on customer’s historical consumption ad interim while meters are read on quarterly basis and adjustments made where necessary. Having seen the system grossly abused for so long, there is absolutely no reason to allow its continuation. NERC must set a deadline for its cessation.


We must not gloss over the fact that the customers have won the day as far as fixed charges are concerned! One hopes that this will assure them that NERC is not insensitive to their complaints.

Magnitude of tariff increase
NERC has a template for determining cost-reflective tariffs. Throughout the NEPA/PHCN years, the tariffs were not cost-reflective; the government dished out generous subventions to the parastatal even though the latter still complained of inadequate funding. The situation has changed; there is no big brother to bankroll the private sector operators who must survive on their revenues. Hence, survival is the name of the game! If the sector is cash-strapped, we, the consumers, will suffer the consequences. We will rely more and more on generators and, before you know it, our conspiracy theory will lay the blame on the doorstep of generator merchants!

Rhetoric apart, what we should be asking ourselves is whether the tariffs are outrageous or not. Since the alternative supply is own generation, a cursory look at the cost of running generators is elucidatory. The commonest form of generators for homes and small businesses uses petrol driven engines. The table below shows just how much we spend on fuelling alone without having to conjecture depreciation and maintenance costs. An R1 rated consumer using a 1 KVA petrol generator will spend about N3,600.00 on fuelling alone as against a DISCO bill of N200.00. In the same vein, an R2 consumer running a 5 KVA petrol generator will spend as much as N 11,750.00 on fuelling as against N4,000.00 DISCO bill for 200 KWh. Those who run diesel generators spend less on fuelling (N6,300 for 200 kWh) but the outlay on depreciation and maintenance is more than that of his counterpart running a petrol generator.

The Honourable Minister of Power, Works and Housing, Barrister Babatunde Raji Fashola (SAN), has made a passionate appeal to NLC to allow the increases to stay for the sector’s survival sake. Recourse to own generation is not an economical option; some consumers unwittingly spend thrice as much as what they condemn now. We can only say that NLC should live to fight another day! (Guardian)