Nigeria’s electricity regulator lost 39% revenue to its insistence on cheap power

In a classic case of what goes around comes around, the Nigerian Electricity Regulatory Commission ( NERC) has recorded a deficit of N962 million in three months ending September 2018, which it attributes to poor revenue collected from operators in the power sector whom it has prevented from charging cost-reflective tariff.

According to the Electric Power Sector Reform Act 2005 setting up the Commission, one key way it generates revenue is to collect operational levy from operators in the power sector as well as budgetary allocations from the Federal Government.

However, since the commission has prevented operators from charging market tariff, its own revenue is now being heavily impacted.

“During the third quarter of 2018, the total revenue realised by the commission was N1.052 billion – 38.6% lower than the revenue realised in the second quarter. The decline in the revenue was largely due to decline in the operational levy (i.e. market charges),” NERC said in its third quarter market report released January 15.

NERC had an outstanding liability of N1,004 billion from the second quarter of 2018, which they were able to reduce by N343 million to N661 million by the Q3 of 2018.

A breakdown of the commission’s sources of internally generated revenue shows that the operational levy generated N856.48 million while other collective sources raked in N195 million.

The company’s total revenue declined by 39 percent, falling from N1,712 million in Q2 to N1,051 billion in Q3 while recording a marginal increase of 2 percent in its total expenditure from N1,351 billion in Q2 to N1,353 million in Q3.

The decline also cost the commission a net cash flow of N301 million, against the positive cash inflow of N361 million recorded in the previ- ous quarter.

Chuks Nwani, energy lawyer and vice president of Powerhouse International, an energy consultancy, said poor tariff had consequences.

“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.

“You recall that from late 2015 there were changes in these variables which would require reciprocal adjustment of the tariff but the government did not allow NERC to increase the tariff to meet up with the current realities. The shortfall that the Discos could not account for becomes a debt for the market which the government is under obligation to pay since it is at their instance that the tariff was not increased,” Nwani said.