Off-grid energy tariff show contradiction in Nigeria’s electricity pricing

While off-grid energy projects like the recently completed Sura Shopping Complex independent Power Project are allowed to charge N50 per kilowatt hour, the Nigeria Electricity Regulatory Commission (NERC) insists electricity distribution companies (DisCos)must sell power between 32-N38 even though both operations are supposed to be private businesses.

This discriminatory pricing model, analysts say distorts the market and magnifies the liquidity crises in the sector.

“The prevailing Disco tariff today was modelled against variables that have been overtaken by time and events and therefore does not reflect the true pricing of electricity. MYTO 2015 for Discos was built on 196/$1, 8.3% inflation rate, certain available capacity and therefore the final tariff was a product of these variables, while they have changed, tariff has not,” Chuks Nwani, energy lawyer said,

Through the Energizing Economies Initiative (EEI), a programme by the Federal Government, implemented by the Rural Electrification Agency (REA), it seeks to support the rapid deployment of private off-grid electricity solutions to MSMEs within economic clusters (such as markets, shopping complexes and agricultural/industrial clusters) in Lagos, Aba and Kano states allowing operators charge market rates for electricity.

Damilola Ogunbiyi, managing director of REA recently told journalists in Lagos that these off-grid IPPs are to solve the inadequate power challenge of small businesses. But DisCos say poor supply follows the regulator’s refusal to let them charge market rate for electricity.

The DisCos accuse NERC of lacking independence.

“The major problem in Nigeria’s power sector is a regulator that is partial, unfair and incompetent and until we get it right nothing will move forward,” Sunday Oduntan, executive secretary of ANED said on a television programne in July.

Oduntan criticised NERC for failure to dutifully implement the Multi Year Tariff Order (MYTO), a regulatory provision that specifies a bi-annual review electricity tariff until it meets a threshold that would allow the investors who bought over electricity distribution assets in 2013, recoup their investments.

ANED has since being proscribed by the Federal Government and Oduntan has been declared an interloper by Babatunde Fashola, minister of Power, Works and Housing.

BusinessDay’s efforts to get the DisCos reaction were unsuccessful as both their representative group ANED and their individual spokespersons refused to speak on record.

An official of the DisCos said the Economic and Financial Crimes Commission (EFCC) is harassing their directors issuing invitations to their office. The Commission did not respond to BusinessDay’s request for comment. The DisCos say they fear there are surreptitious moves to disband them and recover the privatised assets.

On October 14, the Bureau of Public Enterprise, (BPE) said the final performance review date of the electricity distribution companies has been shifted from November 2013 to December 2019 with the exception of Kaduna Disco. The performance review sets covenants and agreements the government and investors have to meet to make the privatisation exercise successful.

While the government has not met all of its obligations, the DisCos have performed poorly in almost all the covenants agreed including metering, investments to advance their network and improve service delivery.

NERC’s attempt to raise tariff in 2015 was unsuccessful. A human rights lawyer, took the Commission to court and secured an injunction to overturn the new tariff.

James Momoh, the Commission’s Chairman told BusinessDay that a tariff review will be done taking account the country’s GDP, population growth rate and factor in loans, losses and technical challenges in the sector, essentially foreclosing any immediate review.

Meanwhile the DisCos loses continue to mount due to ineffective electricity retail price and poor collections by the DisCos. In its 2018 first quarter report, NERC out of the ₦171.1billion billed to customers, only ₦106.6billion was recovered, representing 62.3% collection efficiency. Therefore, out of every ₦10 worth of electricity sold during the quarter under review, ₦3.8 is uncollected.

Isaac Anyaogu