Why we are against increasing electricity tariff now – Discos
Though the current electricity tariff charged customers is lower than the cost, electricity distribution companies (Discos) who have always called for an increase say they will back the new tariff plan if problems with collections and technical losses are resolved.
The Multi-year Tariff Order (MYTO), which regulates electricity pricing in Nigeria, prices the average cost of electricity at N31kwh when the estimated
cost is N53kwh, allowing a shortfall of N22kwh, which has ballooned to huge losses. This is worsened by the inability of Discos to recover the cost of power sent to them.
So the Discos say that debts caused by tariff that are not reflective of costs should be taken off their books, that technical challenges that cut down the quantity of power they actually receive against what they are compelled to pay for should be addressed, and every electricity user must be metered if they must remit 90 percent of collections back to the market.
Azu Obiaya, CEO, Association of Nigerian Electricity Distribution Companies (ANED), told Businessday that apart from those issues, the coronavirus pandemic has had significant impact on global business and economies including the ability of customers to pay for power for a higher tariff.
He said risks facing Discos include foreign exchange risk, as significant portion of the industry costs were indexed in dollars and they were exposed to naira tariffs that were not sufficient. Other risks include threat to stable gas supply, transmission challenges, and regulatory risks. The Discos said these risks would need to be addressed for the new tariff plan to work.
The Discos estimated that a lack of cost-reflective tariff has caused shortfall of over N1 trillion, even though their inability to fully collect the market invoice for the power they are given results in a loss of almost 40 percent of the cost of the power they receive monthly.
While these are fundamental issues, Discos too have been inefficient in their operation. Their operational cost alone is over 40 percent, which could either indicate gross incompetence at administration or manipulation of their books.
Obiaya refuted the suggestion insisting that the high operational costs reflect the challenges inherent in operating in a country where millions of customers are unmetered, have apathy towards paying for power, and where technical losses are high.
Discos’ exposure to banks is responsible for a significant proportion of their non-performing loans. Obiaya said the Discos are in regular talks with the banks even as they have discussions with their regulator to resolve financial losses in the sector.
A reconciliation of the monthly invoices and payments in the power sector found that the 11 Discos owe a combined sum of N622.4 billion and interest accrued on this debt has risen to N308.2 billion, bringing their cumulative debt to N930 billion.
The new service-reflective electricity tariff plan which should have taken effect on July 1 groups customers in five tariff bands based on the number of hours they enjoy power daily.
Electricity generation companies (Gencos) have condemned the postponement of the new service tariff plan, threatening to declare force majeure if the Federal Government goes ahead to postpone the plan.
Joy Ogaji, executive secretary, Association of Power Generation Companies (APGC), in a phone conversation threatened that the operators would drag the Federal Government to arbitration court in the UK over the matter.
Besides compelling DisCos to provide power according to agreed service plan, they were also obligated to remit 90 percent of their collections to the market or risk losing their licence.
The Discos have been able to push remittance to 40 percent, a situation which constrains other market participants. For example, the generation companies get less than 30 percent of their market invoice.
Obiaya said the way forward is for NERC to recalculate the minimum remittance order, making allowances for years there were structural problems, align tariff price increase with retail tariff increase, and compel Gencos to pay the required charge if they must supply power directly to some of the Disco customers under the Eligible Power regulation.
He further called on NERC to repeal the order capping estimated billing until 90 percent of customers are metered.