The furore over the foiled attempt by power distribution companies to raise tariffs yet again brought out the rambunctious state of an industry that is so crucial to national well-being, but whose under-performance has kept the country down. On the Federal Government however squarely lies the responsibility to untangle the mess, starting by loosening the suffocating chokehold of the DisCos on the economy. Tariff increases should never come in isolation: they must be accompanied by the full prepaid metering of all customers as an absolute minimum and efficient service delivery.
The provision of reliable electricity depends on many factors, including cost of generation, adequate transmission and distribution infrastructure, cost-reflective tariffs and targeted subsidies, reduction in power theft, and improvement in service delivery by the DisCos. The Federal Government should proceed with clarity: appropriate pricing must be conditional on the provision of prepaid meters to all the 8.8 million active customers within a definite timeline. Under Cost Reflective Tariff, on no account should anyone ever again be presented with the fraudulent estimated billing or made to pay for power not consumed. To boost economic growth and alleviate poverty, the CRT should cover charges for energy, transmission, distribution and tax in a transparent way and no more.
The DisCos, under the phased Multi-Year Tariff Order, sought to raise tariffs, but were met by protests from end-users, the private sector and lawmakers, who feared that the tariffs would further aggravate poverty and hinder attempts at economic recovery during the prevailing pandemic-induced global meltdown. The truce brokered by the Senate with the DisCos to shift the latest tariff hikes, originally set to take effect from July 1 to the first quarter of 2021, provides only temporary respite for businesses and households. It also comes with enormous costs.
Everyone agrees that the current tariffs do not reflect cost, while one of the aims of the Electricity Power Sector Reform Act 2005 that facilitated privatisation in 2013 is to ensure cost-reflective prices fair to customers, but also “sufficient to allow the licensees to finance their activities and obtain reasonable profit.” As approved by the Nigerian Electricity Regulatory Commission, under the MYTO, DisCos are scheduled to raise tariffs in phases until the optimal pricing is achieved. The timing however is simply not right, first, because there is still a huge metering gap in the market and because of unprecedented COVID-19 induced business collapse and mass joblessness.
More to the point, the serial tariff increases have never been accompanied with improved services. Instead, the brazen extortion of customers by the DisCos has not been addressed. Combined, less than 50 per cent of the 8.8 million customers have prepaid meters. The rest are served with inflated, fraudulent “estimated billing” that saddles households and businesses with paying for services not rendered. That the DisCos have been allowed to carry on with this larceny seven years after privatisation is a reflection of weak regulation, corruption and abdication of the government’s responsibility to protect the people and the economy.
Far from solving the power sector problem, the rigged privatisation has created a messier sector. Due to the inefficiencies of the 11 DisCos and policy missteps, the government has had to subsidise the shortfall in the cost of providing electricity put at N53 per kWh and the N31/kWh DisCos charge consumers. The government absorbs the shortfall and this subsidy has cost the treasury N1.7 trillion in the last five years, according to the Senate. The missed deadline for tariff increase, first from April 1 to July 1, will cost even more. Postponing the increase till January will cost the government another N261 billion, said a report. Worse is that a tranche of the $750 million loan secured from the World Bank and another $3 billion in financial assistance expected from it and the African Development Bank may be delayed because effecting cost-reflective pricing is part of Conditions Precedent to releasing the credit.
Yet, electricity use and access, says the World Bank, have strong correlation on economic development, while its reliability is important for growth and social welfare. Beyond the hype and technicalities, the reality here is a power sector that is in an unmitigated crisis with a heavy cost on the economy. Through corruption and cronyism, the successor companies of the power privatisation of 2013 were taken up by investors with neither the funds nor the expertise to play the market.
Seven years later, the system struggles to deliver above 4,000 megawatts for a population of 200 million despite a total installed capacity of 12,522MW estimated by USAID, while demand is put at between 20,000MW and 30,000MW. Energy for Growth Hub, a US non-profit, estimates that businesses and homes through diesel and petro-fired generators privately generate about 1,400MW, adding 40 per cent to production costs and rendering local products uncompetitive. By 2018, said the World Bank, only 56.5 per cent of the Nigerian population had access to electricity, compared to 96 per cent in Egypt, 83 per cent in Ghana and South Africa 91.2 per cent.
A holistic transformational policy is required to change the narrative: though everyone acknowledges that the entire power value chain, generation, transmission, distribution and even regulation, are in crisis, the solution should start with the DisCos, jointly owned by investors and the state.
The way forward is for government to subsidise meter acquisition and supply as an emergency programme to replace the current perennial subsidy that in reality, does not help a majority of consumers, but goes instead to the heavily-indebted and incompetent DisCos through the fraudulent estimated billing imposed on the un-metered. When they took over in 2013, the 11 DisCos were committed to provide 4.92 million prepaid meters in three years at over 1.6 million units per year. By December 2018, said NERC, only 3.7 million of their 8.8 million customers were metered. This was achieved partly with a N27 billion intervention by the government and its Meter Acquisition Providers scheme.
There should be a definite short timeline to provide all customers with prepaid meters. After that, the CRTs should be the norm and estimated billing criminalised. The CRT should only apply to customers from government, commercial and industrial categories whose consumption exceeds a given MWh per year.
Government should also immediately fulfil all its obligations under the ESPR, post-privatisation agreements, as minority stakeholders in the DisCos and as regulator. Operators should be compelled to meet their commitments, while existing pacts should be harmonised, including the latest with Siemens.