How to make electricity tariff pragmatic
A lot of brain matter has been devoted to the lack of cost-reflective tariff in Nigeria’s electricity market, which forces distribution companies (DisCos) to price power below the cost of production and creates all sorts of avoidable problems.
The DisCos cannot realistically be expected to settle all operators when the power supplied is priced way lower than what they are expected to pay for it. Hence, the recourse has been to settle other market operators such as Transmission Company of Nigeria (TCN) and generation companies (GenCos) a paltry 30 percent of market invoices. As expected, they are seething but the DisCos seem justified in their reckless disregard for market rules.
Meanwhile, a government suffering reputational and performance crises cannot be realistically expected to raise tariffs as electricity supply has only seen only marginal improvement. Large swaths of the population rely on diesel generators to power homes and run businesses. So, the nation is caught between a rock and a hard place.
The way out is a pragmatic approach to pricing electricity or crafting tariff based on reality instead of regulations that seem inspired by a bad case of apoplexy.
The recent directive by the Nigerian Electricity Regulatory Commission (NERC) that DisCos are prohibited from increasing tariff in 2018 is just twisting the knife already plunged into the gut of DisCos.
What if tariffs are decentralised, allowing those living in affluent areas who can afford to pay N66/Kwh running diesel generators pay more than folks in backwater communities of Ngwayiekwe? Residents and businesses in Lagos and Abuja already pay over N66/Kwh for electricity almost on daily basis, what then is the rationale for insisting on uniform electricity tariff of N32/Kwh for the country? As living in cosmopolitan cities confers certain vast privileges, so also there have to be some form of responsibility too.
Already, large cities such as Lagos and Abuja account for the bulk of electricity used in the country, it is only reasonable to have them pay a fairer share.
Politicians come into office promising to provide electricity, thereby giving people the impression it is a social service. This clearly has to stop.
The best practice is to allow the markets determine the price of goods and services, but a government lacking the moral courage to effect difficult reforms can find compromise in pragmatic solutions, assuming it is not completely bereft of purpose.
ISAAC ANYAOGU
The writer can be reached via isaac.anyaogu@ businessdayonline.com or +2347037817378.