February 14, 2016 - 5:17 PM EST
Print Email Article Font Down Font Up
The Hue and Cry Over Hike in Electricity Tariff

The increase in electricity bill is inauspicious and ill-timed given the lack of improvement in service delivery.

Nerves of steel could probably be the main prerequisite for anyone planning a business that requires electricity in

. That is due to the epileptic and highly unreliable nature of power supply. Most businesses depend on power to thrive - which explains the rough time Nigerians go through to do business and lead private life in their country. But atop this troubling situation, the authorities have imposed a huge increase in the price of electricity, more or less trying to force electricity consumers to pay more for what is hardly available. This has caused a bitter controversy.

The increase in electricity tariff - estimated to be between 40 per cent and 100 per cent - announced by the Nigerian Electricity Regulatory Commission, which took effect from February 1, attracted almost spontaneous rejection. The Nigeria Labour Congress, Trade Union Congress, and civil society organisations held rallies in

and many state capitals on Monday to give voice to their objections to the tariff hike. They are insisting that any increment must be preceded by improvement in service delivery and the provision of meters to check the arbitrary estimation of bills. Labour and civil society groups are also demanding that any increase in electricity tariff must be negotiated. They see the current hike as a barefaced attempt to increase the impoverishment of the citizens.

NLC president, Ayuba Wabba, stated during the protest in

: "Billing all over the world is based on consumption. You pay for what you consume. Why should we continue to pay for darkness? Why should we continue to pay where there are no meters?" The Manufacturers Association of Nigeria and the Nigeria Employers' Consultative Association have also opposed the new tariff. Director General of NECA, Olusegun Oshinowo, was quoted as saying, "An increase of the tariffs is not something that employers would moan about, really, especially if one looks at how much diesel is sold. For us, the issue is not primarily about increment to tariffs but about the availability of electricity."

But the electricity distribution companies say they are trying to make tariff reflective of the cost of production. Executive Director of the Association of Nigerian Electricity Distributors, Mr. Sunday Oduntan, said, "If we continue to sell below the cost price, then the industry would collapse. And we should not forget where started from, it's a very long journey. But now the journey is steady."

has had a long, rough journey to the current attempts to properly regulate activities in the power sector through privatisation. But the attempt has been fraught with corruption. Nearly N3 trillion has been spent by the federal government on the power sector since 1999. This is besides investments by state governments, which are now empowered to go into partnerships with the federal government to improve electricity supply in their territories, since electricity is on the Exclusive Legislative list. It is also aside from development assistance funds to the power sector from countries and organisations.

On Thursday, the Japanese government announced a grant of 1. 3 billion Yen (about $11 million) to

to help improve power supply.
ambassador to
, Mr. Sadanobu Kusaoke, said the grant, which came through the Japan International Cooperation Agency, was meant to improve electricity supply in
and its environs. But
has had very little to show for all the investment in the power sector. Electricity consumers should not be made to bear the brunt of the inefficiency and corruption of the authorities in the power sector. This, clearly, is the position of most Nigerians.

Minister of Power, Works and Housing, Mr. Babatunde Fashola, says the new electricity tariff, which is part of a 10-year rolling plan, is long overdue. He blames the immediate past government of Dr. Goodluck Jonathan for lacking the courage to effect the increase. The Jonathan government had, indeed, tended to use electricity as a tool of political power when in March last year, just before the general election, it reduced electricity tariff by 50 per cent with effect from April. Experts criticised the reduction as not based on realistic indices. Now, however, most Nigerians think it makes neither political nor economic sense to increase electricity tariff. The argument against increment, to all intents and purposes, dwarfs even the most persuasive reasons the electricity authorities may adduce.

First, electricity is hardly available and it seems quite illogical to ask people to pay more for what they cannot really depend on to power their businesses and provide personal comfort for themselves.

is said to require about 160,000 megawatts to reach the globally accepted standards and meet the power needs of its 170 million population. But the country lurches between about 2, 000 megawatts and 4, 600 megawatts, a generation capacity that is grossly inadequate.

Second, the power sector has seemed to be a cesspit of corruption. That is obviously why the huge monetary investment in the power sector by government has not produced commensurate impact on the efficiency dynamics. Third, cost of power generation is a significant determinant of electricity pricing, and the price of power generation depends basically on the type of fuel used and its market price.

Other elements of the power generation cost include government subsidies, regulations, and weather condition. Nobody can gainsay the fact that the fundamentals of power generation, at least for now, favour the power companies in the country. What with the record fall in crude oil prices, abundant natural gas, subsidies, and investor-friendly policies, the power companies should not have much headache doing business in

. Power plants in the country are mainly hydro-electric and thermal or fossil fuel powered. And the two main types of fossil fuel/thermal power plants in the country are coal-fired and natural gas-fired.
natural gas reserves are estimated to be over 187 trillion ft³ (2,800 km³), about three times as substantial as the crude oil reserves. But of the current annual gas production of about 2,000 bscf (billion standard cubic feet), about 40 per cent is flared. Though, this represents a drop from the about 70 per cent flared before the latest reforms in the oil sector, the federal government must strive to acquire the requisite capacity and infrastructure to enhance gas production and reduce flaring.

The Nigerian government has made available a N213 billion facility for operators in the electricity sector, which is said to have been substantially disbursed. The Central Bank of Nigeria is reported to be making plans to release the balance of the facility to the operators. Rather than talk about tariff increment, NERC should focus on fixing the enormous leakages and lapses in the power generation and distribution system. Corruption in the system must be tackled to ensure that investment in the sector reflects in the quantity and quality of service delivery to electricity consumers.

Very importantly, the authorities must device effective ways of collecting electricity bills to ensure that customers pay for what they consume as well as eliminate losses and minimise room for corruption. Assistant national secretary of Nigerian Electricity Consumer Advocacy Network, Mr. Obong Eko, recently disclosed that the electricity distribution companies were not collecting bills from more than 50 per cent of their customers.

Military and police formations along with various agencies of government were said to owe the power distribution companies about N132 billion (about $660 million) by the end of last year. The debts, which were estimated to be over N99 billion (about $495 million) by September 1, 2013, rose to N132 billion ($660 million) by September last year, an increase of N33 billion in two years.

Electricity consumption in the country is still largely based on estimated charges, which makes it almost impossible for bills to match consumption and leaves room for corruption. It is the duty of the distribution companies to meter their supply and they must be alive to this responsibility.

Perhaps, if NERC and the power companies put their house in order, the pressure to increase tariff may be minimised. And if the occasion arises, the citizens would have reason to believe that an increase is necessary.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Source: Equities.com News (February 14, 2016 - 5:17 PM EST)

News by QuoteMedia

Legal Notice