Power sector reforms and tariff controversy
If there is any sector of the nation’s economy that has generated so much controversy, especially in the last 16 years, it is the power sector. Nigerians have been subjected to increasing cost of power; being made to pay estimated electricity bills that are not commensurate with the power they consume. The issue in contention is the tariff, the cost per unit of power consumed by an average consumer.
In the last 16 years, tariff has been increasing geometrically without any commensurate supply of power. Tariff has continued to be reviewed upwards with no increase in power supply. Even when they do not have light for 80 percent of the month, the bills keep coming with high tariff.
Recently, Babatunde Fashola SAN, Honourable Minister of Power, Works and Housing, sought to clear this controversy over tariff and set the records straight as well as encourage Nigerians to partner with government in the ongoing reforms in the Power Sector. The problem, the Minister explained, is caused by the wrong pricing of gas, a critical element in the production of electricity.
While local gas was selling at $1.30, gas for export was selling at $4. It, therefore, made no business sense producing gas for local use. So there was need to raise the price in order to get more gas for the nation’s idle power plants. That decision was made by the Nigerian Electricity Regulatory Commission (NERC), which added two dollars to the price of local gas in order to boost production, hence the latest increase in tariff.
As simple as it sounds, it is a very significant issue in the total power supply equation, especially when weighed against the fact that the entire nation is serviced by 26 power plants three of which are hydro-powered while the rest are gas-powered. In other words, more than 80 per cent of the nation’s electricity supply depends on gas.
The realistic thing to do after privatization would have been to allow market tariff to prevail. To the new operators of the sector, the Generation Companies (Gencos) and the Distribution Companies (Discos), the old tariff was simply not compatible with the business of power. It is instructive to note that the last administration actually made an attempt to review the tariff in 2014 but quickly reversed it when they realized that it could jeopardize their chances at the polls.
What is the difference between the old and the new tariff regimes, especially when the new one is higher than the old? From the explanation given by the Minister, it is obvious that there are two broad lines between the two tariffs. While the old tariff was meant to continue to go up without any substantial increase in power, the new Multi-Year Tariff Regime, if it is allowed to stay, covers a longer period of about ten years during which power supply is expected to stabilize with the correct pricing of gas and increase in local gas production.
The truth of the matter is that with the correct pricing of gas, more investors are likely to come in and increase production locally. For example, NERC has issued over 100 licenses for power generation but without the right tariff, that will not translate to power plants because the investors will not come. But if the regime is allowed to stay, these investors will move in and this can only translate to incremental power.
From what is already on ground, it is very obvious that many Nigerians are interested in the business of power and,as the Minister rightly put it, “once Nigerians are interested in doing something, they don’t lose, they don’t give up”.
It is obvious that the only enabling environment that can bring investors into the sector is gas whose large scale local production depends on correct pricing of gas which, in turn, gives rise to increase in tariff. In other words, it is the tariff that gives stability to distribution, to transmission, to generation and to gas production. If that stability is not there, as the Minister rightly explained in his interview, “we can have all the generation capacity, the distribution companies won’t take power”. The indication is already there as some discos are rejecting power because they cannot sell it. And, according to him, “once power has been sent to them, it cannot be stored”.
Perhaps, one of the most salient arguments for the Multi-Year Tariff Regime is the cost to the nation that resulted from the attempted review of tariff and later reversal by the immediate past administration in 2014. The Minister himself put it this way, “When I first became MINISTER. I was taken through all the reviews and I saw in fact that the tariff was reviewed upwards but was reversed because of elections and during that reversal, liabilities had accumulated; over N200 billion liabilities had accumulated. If we kept the tariff going like that, every two years, Nigeria would be indebted to them (discos) to over a trillion Naira for an asset we had sold. So we are going back to an era of subsidy for people who are supposed to be operating commercially. I couldn’t recommend that. If we had a trillion Naira to spend on Power why couldn’t we give it to PHCN. If we had done that we won’t be where we are today”. Of course it wouldn’t have taken too long before the sector would collapse because the discos would be owed and would withhold their service just as the independent marketers in the Petroleum industry.
There is need, therefore, to give the present administration a chance to do things differently. Considering his pedigree, I believe that the Minister of Power, Works and Housing has the capacity to change things for the better in the Power Sector.
He has demonstrated, so far, real knowledge of what is at stake. Many Nigerians also know that when he sets his feet on anything, it gets done.
By his diagnoses, the problem in the sector include insufficient gas to power the nation’s power plants from which over 80 per cent of electricity is generated for distribution, non-maintenance of power assets over long periods of time, among others. Take for example a gate at the Shiroro water engine point which had been damaged since 2010.
The Minister was there recently and he noted that repairs had been carried out by the new owners. If that gate, which regulates the flow of water into this Shiroro Dam, was not repaired, in times of very extensive tide, it could compromise the entire plant and result to a loss of 600MW of power. There is also the case of Jebba where maintenance had not taken place in the last 30 years until the new investors arrived.
There are others no doubt, but the Minister himself assured in that that these problems would be solved “because they were man made”. He assured that if the case against the tariff could be taken out of court and Parliament, investors would come in as, according to him, business men are more confident when they know that the game won’t change. That way, there will be incremental power moving continually, say from 6,000MW to 8,000MW and upwards like that and there will be enough power to distribute equitably.
MAC DURUGBO is a socio-economic/political analyst based in Lagos