Inconsiderate as ever to the raging privations of the majority and the rapidly declining economy, the President, Major General Muhammadu Buhari (retd.), ambushed Nigerians by approving the suspended increase in electricity tariffs and the deceptive fuel price increase. To take effect from September 1, the notoriously inefficient electricity distribution companies are to charge customers higher, though graduated, rates. While cost-reflective tariffs are inevitable to cover costs and profit margins of operators, it should be contingent on the provision of prepaid meters and a road map to solve the energy sector crisis
The government also demonstrates its signature insensitivity and economic management incompetence once more by approving delayed tariff hikes without enforcing its long-standing regulatory order that no customer should be billed without a prepaid meter. The government practically threw traumatised Nigerians under the bus, leaving them at the mercy of the DisCos whose patchy services since taking over the sector in 2013 have hurt businesses and plunged homes into darkness. Worse, deprived of prepaid meters, most customers are saddled with estimated billing, thereby forcing them to pay for power never supplied. Buhari’s homily that prepaid meters be provided amounted to locking the stable door after the horse has bolted.
Moreover, at a time of a severe global and national economic contraction, it was expected that like many other countries have been doing, the scheduled tariff increase would be suspended for a few months more to give consumers a much-needed breather to conserve diminishing disposable income for essentials such as food and transport to keep the economy humming. The Lagos Chamber of Commerce and Industry predicts unemployment to rise from 27.1 per cent to 40-45 per cent by year-end. The National Bureau of Statistics has been rolling out figures on rising food inflation, which pushes many more families below the poverty line.
And just as Nigerians were agonising over the tariff increases, a further increase in the pump head price of petrol was unleashed on them under a flawed deregulation. Stuck and confused over how to ensure domestic sufficiency in refined petroleum products, the regime hurriedly foisted a haphazard downstream oil deregulation on the hapless citizens. If times were hard before, tougher times lie ahead with these developments. Inflation rose to 12.82 per cent in July, the highest in 27 months, said the NBS; this excludes headline inflation; prices of energy and volatile food and agricultural produce, the ones that impact most on poverty and living standards. With the composite food index hitting 15.48 per cent in July and the expected impact of higher petrol prices on transport costs, more Nigerians may join the 91 million estimated by the World Poverty Clock to be living in poverty.
The government and the DisCos have been at pains to downplay the injustice. Under the tariff plan, customers have been graded and only those on the top rungs, enjoying 12 hours of uninterrupted power or more and those under dedicated power arrangements, will pay more for now, while those within on lower rungs served with poor supply will pay the old rates. Such promises that only customers with regular supply of 12 hours minimum will pay more ring hollow; consumers are accustomed to being routinely billed for power not supplied while the Nigerian Electricity Regulatory Commission has proved to be an ineffectual regulator whose orders the DisCos treat with contempt.
As business operations, adjusting prices to cover costs and profit margins are normal. Indeed, the DisCos take solace in the fact that this is provided for in the Multi-Year Tariff Order, an incentive-based tariff model that sets prices in the industry – generation, transmission and distribution– based on revenue requirement, measurable performance, improvements and standards. Alas, while tariff increases have been regular since the erstwhile state monopoly on electricity was transferred to private investors, there has been very little improvement in services from the DisCos. Supply is epileptic, investment and infrastructure upgrade extremely low while some customers are forced to pay for transformers, cables, poles and maintenance.
At present, the DisCos behave as ineffective and inefficient monopolies, interested only in tariffs. Worse is the continuation of the “crazy bills” heist. NERC admitted that by June 2019, only 3.81 million out of the 8.88 million active customers, representing 42.92 per cent, had been supplied with prepaid meters, leaving 57.08 per cent at the mercy of arbitrary, extortionist billing. Only three of the 11 DisCos had provided over 50 per cent of their customers with the meters.
Really, the government should now understand that price increases alone do not transform or draw investors into an industry. It should be the last, not the main step. The liberalisation and success of the telecoms sector in attracting investments and creating jobs was due to how it was transparently implemented. Getting the right structure through the right policies, the capable operators and the appropriate regulatory framework are the determiners of success of any deregulation and liberalisation policy.
The Buhari regime should do the right thing on the endemic electricity crisis: review the performances of the DisCos and save the people and the economy from their choking and obstructive jaws. NERC needs a massive overhaul and upright, resolute executives. So far, it has been almost useless in mediating a service-oriented power industry; Buhari should headhunt managers that have the requisite knowledge and integrity to knock some order into the chaotic market.
The regime needs to streamline its economic stimulus plan to accord priority to getting people back at work, putting disposable income in their hands and boosting activities in agriculture, mining, SMEs, the informal sector. Across the world, relief measures have included suspension of utility bills’ payment, tax reliefs, cash handouts and payroll support for businesses. Ghana’s government absorbed the cost of electricity for consumers during its lockdown period; others in the European Union forbade disconnections for non-payment. According to the ESI Africa, a trade journal, as part of their COVID-19 crisis response, Burkina Faso, Chad, Congo Brazzaville, Democratic Republic of Congo, Gabon, Guinea Conakry, Ivory Coast, Mali, Mauritania, Niger, Senegal and Togo have also offered free electricity to some segments of the population. South Africa’s Free Basic Electricity scheme provides limited 50 kWh per month free electricity to poor and vulnerable households.
Amid suggestions that the government raised energy prices following pressure from the World Bank/IMF as a condition to obtain about $3.4 billion in promised aid to fund its Economic Sustainability Plan and deficits, there is a need to quickly resolve the energy sector crises to facilitate freedom of action in taking economic decisions that impact significantly on the people.
Ending the tyranny of the DisCos that have added little value to the system in terms of investment or service delivery should be a priority. The fixation with higher prices as the solution to, and magnet for investment, has been repeatedly proved wrong. The structure of the market, the enabling operating environment and entrance of capable operators must combine with the exit of the government from the market to deliver desired outcomes. Frequent, contentious fuel and power price increases over three decades have not delivered competition and efficiency. For now, the tariff hikes should be suspended until every customer is metered. Mele Kyari, the Nigerian National Petroleum Corporation Group Managing Director, describes running the four refineries as “value destruction.” “You will take $100 crude into the refinery and bring out $70 of product. It doesn’t make sense.” What, indeed, makes a lot of sense is to anchor deregulation on domestic production of petroleum products. This is the way to go.
