THE ELECTRICITY CONUNDRUM
It was the lot of Musliu Oseni, vice chairman of the Nigerian Electricity Regulatory Commission, to carry the sad tale of an upward review of tariffs in the electricity sector last week. He told Nigerians that the regulatory authority had approved an increase in the tariff for the premium band from N66 to N225, a 230 per cent rise. He said the hike was necessary to reduce the federal government’s N1.14 trillion subsidy and move significantly towards cost-reflective pricing.
As usual, the communication of the new tariff regime was tardy as the initial impression was that the increment was across all the bands. But with the deafening protest of the hike, clarifications, believed by many to be an afterthought, began to come from officials of the regulatory agency. The weary public was told the price raise would only affect the premium Band A, which is only 15 per cent of the 12 million customers nationwide. Despite the clarifications, most of the public remained suspicious that they had not heard the last of the price hike.
Public outcry against the tariff hike is understandable, and it arose from the deep discontent with the extremely suboptimal service delivery in the sector. This is particularly so because similar exercises in the past had not measured up to the promise of better service delivery. The current price being reviewed was set in December 2022 but became effective in July 2023. Nigerians were told that the increase was necessary for the distribution companies to charge the tariff that would make them provide more efficient services.
The much-talked-about premium Band A, was to pay N66 for a minimum of 20 hours supply, while Band B was to pay N63 for a minimum of 16 hours supply. Until last week’s price rise, none of these happened. Instead, the services rendered became worse with the distribution companies delivering worn-out excuses for their failure to supply power to Nigerian homes. If they were not complaining about the numerous grid collapses, they would plead persistent equipment breakdowns, vandalism of infrastructure, low tariff collection rates, energy theft, and outright refusal of unmetered customers to pay estimated bills.
Confronted by public outcry against the monumental failure of the distribution companies, Adebayo Adelabu, the minister of Power, at some point had to threaten them with the possible withdrawal of their operating licences if they did not sit up. The DISCOs did not take the threat seriously as the blackouts persisted, and rather than lose their licences, they got a price upgrade. For many Nigerians, this is a deadly blow below the belt, which will not address their pains.
In the coming weeks, therefore, the power minister and the NERC will have a lot more explanations to make to the public on how this upward price adjustment policy will address their concerns about the abysmally poor power supply nationwide. This is particularly because the outage situation has worsened since the tariff hike, meaning that the two government agents must be ready to endure several cynical remarks from a public that is tired of justification of failed policies. Again, the cynicism would be legitimate given the people’s experience since the power sector reforms began in 2010.
When the reforms began, the public was told that the movement from public to private management of the sector would attract the funding and the efficiency required to drive it to provide an uninterruptible power supply. This has not happened significantly. In 2013, when the generation and distribution arms of the sector were handed over to the private sector, the generating capacity was 6,000 MW while the actual generation was around 3,500 MW. At that time the federal government had ongoing power plants with a total installed capacity of 10,000 MW. By the time President Goodluck Jonathan left office in 2015, he had completed the 10 power plants as well as the gas transportation infrastructure to power them.
So, in terms of generation capacity, the government handed over at various times between 2013 and 2015 about 16,000 MW. Generation was 3,500 MW. What has been Nigeria’s experience since then? Despite trillions of naira that the federal government has spent propping up the sector, private sector intervention has only added a meagre 384 MW to generation capacity to bring it to 16,384 MW. Actual generation moved by another miserable 1,877 MW in 2020 to 5,377 MW, the highest ever to date.
Distribution in 2013 hovered around 2,500 MW to 3,200 MW. Eleven years later, the private investors are still perambulating around the same figures. Meanwhile, the transmission that remained in the hands of the government had acquired a wheeling capacity of 8,100 MW.
It is curious that despite the actual generation of 5,377 MW and a transmission wheeling capacity of 8,100 MW, distribution struggles around 3,000 MW.
It is clear, therefore, that private sector intervention in the electricity sector has not brought any significant relief. It has worsened in terms of the expected outcome of the regular supply of power. What the minister and the regulators should be explaining to Nigerians is why the country is in this bind. Is it that the current private operators lack the technical capacity or financial muscle or both? Whatever it is, the public needs more than just an explanation of the failure of this private sector model. It needs to be assured that it is not just a viable alternative to public management but also that the current operators deserve to hold their operating licences.
It will also be interesting to hear the regulatory authorities’ explanation on how despite the abysmal generation outputs of the generating companies, some of them, like Transcorp Power Plc and Geregu Plc, are declaring double digits in billions of naira profits. Transcop’s PBT grew by 84.61 per cent year-on-year, from N28.6 billion in 2022 to N52.8 billion in 2023. Geregu announced N21.9 billion profit before tax in its unaudited first quarter ended March 31, 2024, an increase of about 308 per cent from N5.37 billion profit before tax declared in Q1 2023. Interesting.