Right step towards improving power supply in Nigeria?

The growth, prosperity and security of any country depend, to a large extent, on the adequacy, efficiency and functionality of its electricity industry. Unreliable power supply constitutes a major challenge to Nigeria’s economic growth and development, hence solving the lingering electricity problem is critical to realizing the nation’s quest to become one of the 20 largest economies of the world by 2020 and also becoming a preferred investment destination in Africa.

Over the past two decades, the stalled expansion of the national grid coupled with the high cost of diesel and petrol have affected growth of the nation’s productive and commercial industries.

While erratic and unpredictable nature of electricity supply have engendered a deep and bitter sense of frustration across the country, especially in the urban centres, electricity consumers have continued to crave for a fundamental reversal of the long and debilitating malaise which has blighted the sector and, in doing so, weakened the tremendous energy and creativity of this great nation.

The effort at addressing this malaise led to the development of a roadmap for power sector which was launched by President Goodluck Jonathan in August 2010. Among other things, the roadmap was aimed at removing obstacles to private sector investment, clarifying government’s strategy on the divestiture of the Power Holding Company of Nigeria (PHCN) successor companies and reforming the fuel-to-power sector.

With the participation of the private sector seen as germane towards ensuring improved power supply in the country, the establishment of an appropriate pricing regime was aimed at making sure the sector becomes financially viable throughout the value chain, as end-user tariff must, at least, be at a cost-reflective level.

While investigations reveal that the nation sells power below cost at an average of about 10 naira (or six US cents) per kilowatt hour, one of the cheapest rates in Africa, it was observed that the electricity tariff as it now stands is significantly below what is necessary for the sector.

As a result, not only is PHCN continuously unable to meet recurrent expenditure requirements, it has to continually plead with the government for additional monies for short term and long term capital expenditure. More importantly, without a pricing regime that supports financial viability in the sector, it simply makes no sense for a private sector operator to come into the market.

Logical and laudable as this argument sounds, many Nigerians have rejected it, describing it as another move by the government to further impoverish them. The disturbing scenario is that while the government is resolute on going ahead with the new tariff structure, the people on the other hand are equally bent on resisting the move to the very end.

Addressing newsmen recently, Sam Amadi, Chairman, Nigerian Electricity Regulatory Commission (NERC), revealed that given the proposed increase in the tariff paid by heavy electricity users, it would be cheaper than the cost of generation.

He pointed out that heavy consumers currently pay between N35 and N50 per kilowatt hour when they self generate, but would not pay anything near the current cost of using diesel-powered generators, which in turn, pollute the environment and kill people.

Amadi disclosed that NERC had abolished the monthly payment of service charge and meter maintenance fees which PHCN had imposed on customers. He hinted that NERC would soon resume its interactive sessions with market leaders, civil society organisations and other stakeholders to protect the interests of both electricity investors and consumers.

The NERC boss observed that prior to the introduction of Multi-Year-Tariff-Order (MYTO), the industry was characterized by lack of a transparent price determination process and abysmally low tariffs. The NERC boss added that the PHCN-fixed government-determined tariffs are mostly based on the political whims and considerations as opposed to the economic principle of full cost recovery.

“This promoted inefficient pricing of electricity and constrained the ability of government itself to recoup costs of investment. This ultimately undermined the growth potential of the sector because it totally distorted the economics of the electricity and deferred private sector participation until now,” he stated.

He explained that “MYTO provides for periodic review of the cost parameters through the minor (annual) and major (five-yearly) review windows. The annual review of the framework takes into cognizance changes in gas price, inflation and exchange rates while the major review considers holistic changes in major parameters.”

Meanwhile, speaking before the Senate Committee on Power, Bart Nnaji, Minister of Power disclosed that recent reports claiming that all electricity consumers would increase by almost double were not factual. Nnaji stated that a substantial percentage of people living in towns and cities would not pay much higher because they are “among beneficiaries of the Federal Government’s N60billion subsidy this year and the N50billion next year.”

The minister revealed that by 2014, when government subsidy is expected to end, the less affluent in the society would continue to enjoy subsidy, but this time, with the subsidy paid by the rich and other heavy electricity end users.

“The tariff will be determined by the wattage consumed by each customer,” he said, explaining that “those who consume those less than 50watts a month are considered less privileged and are known as R1 (Residential) customers. Comparing the situation to what happened with the telephone sector where the tariff reduced with time, the minister observed that the electricity tariff would also come down.

“The tariff being proposed is based on 4,500Megawatts, and it will come down considerably when we begin to generate 7000MW and above.”

Nnaji assured Nigerians that “much as the existing tariff has to be adjusted to attract both local and foreign investments in the power sector, the government has a duty to ensure that the people of Nigeria are not exploited. We devised an amortisation plan of 15 years, so that the people are not ripped; the power sector in Nigeria should not be for those who want hot money.”

Reactions from Nigerians

The Trade Union Congress (TUC) has rejected the Federal Government’s plan, saying the plan will bring untold hardship on Nigerians. Peter Esele, President of TUC, described the decision as “unjustifiable and absurd from any right thinking government.” The TUC president regretted that power supply in the country has continued to deteriorate, despite the billions of dollars expended to improve the sector, adding that the reality on ground point to the fact that corruption and mismanagement of resources has been the bane of the sector.

The TUC president stated that government should ensure stable, regular and affordable electricity before considering any hike in electricity tariff. “There is no justification for another increase in tariff because Nigerians are not getting value for the huge amount being paid for electricity as power situation has worsened in recent times.

It is unimaginable that government is considering further increase in electricity tariff when Nigerians are not getting value for their money and power situation has not improved despite the billions of Naira invested in the sector. “We are talking about generating 4, 000 megawatts of electricity when serious countries with less than half of our population are in the region of 50, 000 megawatts.

Even this 4, 000 megawatts has become a mirage and when achieved has become unstable. We always put the cart before the horse and that is why we are where we are today. Government must rethink its policy if the country must move forward,” Esele said. In her contribution, Abimbola Adedeji, a banker, said the tariff increase was a mockery of the Federal Government’s avowed commitment to the welfare of the citizenry, stressing that the new tariff was another effort to compound the woes of the masses.

“How can they increase tariff at this point in time when there is no electricity? We are still in darkness and they want to make us pay more. It is really a shame. If their argument is that it is part of reforming the power sector, then they should have first made the power available before asking the people to pay more,” Adedeji asked. On the contrary, Abiodun Ogunleye, Managing Director of PowerCap Ltd, a power consulting firm, said that the tariff increase was well intentioned, but that NERC must evolve all mechanisms to make power supply more stable.

Ogunleye pointed out that government was losing a lot of revenue due to problems of generation, transmission and distribution hence there was the need to increase tariff to attract investors. “Besides, the agencies in charge of electricity supply and privatisation should get it right this time to avoid recycling of ideas and human resources. People have to pay for the right price of electricity tariff consumed because I don’t think we should encourage subsidy in power sector again,” he said.

Ogunleye however advised NERC to be considerate by not introducing tariff that would impoverish the masses. “If the sector is fully deregulated, it will attract more investors and improve supply in the country. We should not subsidise any sector with what we are experiencing in the oil and gas sector,” he noted.

Electricity tariff plan

According to the new tariff template, electricity consumers in the Residential Two (R2) category, that is, residential customers with single face meters, are expected to pay between N10.85 and N14.60 per kilowatt as against the current rate of N7.30 per kw/h, while those operating on R3 consumers, who are currently paying N11 would be charged between N16.50 and N22 per kw/h.

In the same vein, ‘Residential One (R1)’ category, comprising the lowest paying customers who are paying N2.20 per Kw/h, will start paying N3.30 and N4.40 Kw/h while the highest paying customers, who now pay N15.60 would be expected to pay between N23.40 and N31.20 respectively when the new tariff regime takes off.

Amadi explained that in view of the importance of efficient distribution of available electricity supply, only efficient power distribution companies would be allowed to benefit from the new tariff rates, as NERC will not sign any tariff if it appears that the sector is not properly regulated by operators such that it is cost effective and beneficial to all parties.

The NERC, it would be recalled, increased electricity tariff from N8.50 to N10.00 per kilowatt last July, in a bid to boost revenue and stimulate investment in the troubled sector in line with the implementation schedule of the 2008/2013 regime of Multi-Year Tariff Order (MYTO). Amadi noted that the periodic review prescribed in the Multi-Year Tariff Order took into cognisance changes in gas price, inflation and exchange rates, arguing that the planned tariff structure was based on the ability of price to acts as a catalyse for efficient allocation of resources and promotion of availability, affordability and accessibility of electric power to all Nigerians,. “The review is aimed at ensuring that prices at all times reflect the prevailing economic circumstances in Nigeria.

It is on record that between 2008 and now, the MYTO has undergone two minor reviews in line with the methodology,” he said. The NERC boss maintained that the general belief was that the current MYTO prices could not support investments therein as they were much lower than what obtain in most developing countries. According to him, despite these attributes of MYTO, the Nigerian electricity market is yet to become robust, and would likely remain so unless certain measures are taken to reposition it for optimum efficiency.

“The much needed private sector investment, especially in the distribution sector, has not materialised. And this is likely to continue as long as the federal government continues to hold on to the responsibility for policy making, regulatory and operational management across the three sectors of the Nigerian Electricity Supply Industry,” Amadi said.

Complaints over arbitrary billing

A large number of electricity consumers in the country have continued to protest what they describe as arbitrary billing by power distribution companies on monthly basis. A cross section of consumers says such situations could have been checked if prepaid meters were made available to those who applied for them. According to Business Day findings, the problem of arbitrary billing is faced more by customers who use analogue meters. These groups of Nigerians feel the bills are not commensurate with electricity consumed in the area they stay.

Issac Ogboche, a civil servant lamented that he was tired of paying PHCN bills as they were only concerned about bringing bills without light. Ogboche said he was not comfortable with estimated bills. “I have been complaining to PHCN to reduce its tariff because it is too much, even the light, we don’t even see it. I don’t have any other alternative but to keep on paying the bill.

Honestly I prefer that pre-paid meter so that I can buy the amount I need every month. If you go to my area, you will see no light but every month I will be paying for something I never used, this is very unfair. “It seems my area has bad luck in terms of getting light from the PHCN. We have complained so many times but they said the problem is from our transformer, in fact we are fed up with them, our only hope is for God to come and intervene in our problem.

How can you pay for something you never consumed? Miriam Ezeike, who works at the University of Lagos, revealed that when she packed into a new apartment, she was told to pay six thousand naira by PHCN. According to Ezeike, “the reason being that the old tenant owed PHCN. The meter I am using in my house, I can’t even read it.

I don’t even know how they count it, is an outdated meter.” However, Lewis Ekiyor, a sustainable development advocate, observed that critical issues of measurement which has to do with accurate measurement and effective pricing do not appear to have been adequately considered. “Electricity as services falls under economics of scale; so for instance if metering is inaccurate, private companies will rake in millions of Naira daily for services not provided. I have always wondered if monies realized from the unmetered bills are adequately accounted for or if N2000 collected for the continual disconnection and reconnection in most poor areas are receipted. It will be interesting to see the PHCN accounts someday”, he said.

Way Forward

While the proposed price hike may not enjoy a smooth-sail even when endorsed due to public outcry, Nigerians have called on the Federal Government and the NERC management to improve service delivery giving the growing demand for improved power supply in order to justify the increment.

To tackle the numerous challenges facing the power sector, Peter Esele, TUC boss advised government to revive most of the electricity projects under the Independent Power Projects (IPP) and invest in facilities to bring in constant supply of gas to the plants to ensure that their operations are not hampered by paucity of fuels to run the turbines. “Once the electricity problem is resolved, Nigeria will naturally start working itself into economic prosperity as small and medium scale production will begin to come back on stream, while costs is reduced in the bigger manufacturing concerns where the contribution of self – supply of electricity inflicts about 60 per cent cost on their total cost outline in the production process.

This will make them more competitive thus reducing imports, reducing inflation, putting less pressure on the foreign exchange market and reducing the consumption of diesel. The TUC boss added that “the positive multipliers that would be unleashed on the economy will resonate bringing back the industries that have fled the country and attracting new investments. However, it is imperative that we explore every means possible to solve our electricity problem if we are serious about all the high sounding rhetoric on vision 2020 and its promises for work.” Lending his view, Ezenwa Nwagwe, Vice President, Transparency International in Nigeria, cautioned that the proposed increase in electricity tariff could result in another crisis.

According to him, “Nigerians already have a strong resentment for poor governance in the country and any attempt to hike the electricity tariff in spite of poor power supply may trigger civil unrest,” he said. While threats to efforts aimed at ensuring improved power supply is the continuous vandalism of power equipment and facilities, there is the need for government to take urgent and effective measures to check this untoward trend in order not to cripple the power sector. The issue of prepaid metre should also be addressed to ensure sufficient availability and supply of the metres to all consumers for enhanced billings, efficiency and productivity in electricity distribution and supply.

For Celestine Izuka, an engineer in one of the leading engineering firms in Lagos, government needs to properly manage and effectively address the unresolved issues in the power sector, especially as they relate to the privatisation of the PHCN and its successor companies – in concert with all stakeholders, including the workers’ unions, in order to ensure a hitch-free and successful completion of the power reform programme. “Government should vigorously pursue, intensify and accelerate the power sector reforms in order to ensure efficient, adequate, reliable and constant power supply to stimulate and enhance economic recovery, growth and development of the country,” Izuka concluded.