The New Electricity Tariff Controversy

The new tariffs are welcome, but more change must come too

There was a wave of protests across the country last Monday as officials and members of the Nigerian Labour Congress (NLC), Trade Union Congress (TUC) and several civil society groups demonstrated against the recent increase in electricity tariff which they described as outrageous. And with that, the new tariff structure which attempts to pass some of the cost of electricity generation, transmission and distribution to the consumer is already generating serious public concerns.

In the new tariff regime which took effect from February 1, residential customer category (R2) in the Federal Capital Territory (FCT), Niger, Nasarawa and Kogi States, which are under the Abuja Electricity Distribution Company (AEDC) franchise, the cost per kilowatt/hour has been upped to N23.60 from the earlier N14. An increase of N10 and N8, N11.05, N9.26 also applies to residential customers within the Eko, Ikeja, Kaduna and Benin electricity distribution areas respectively.

According to the Minister of Power, Works and Housing, Mr. Babatunde Raji Fashola, SAN, the new Multi Year Tariff Order (MYTO) is aimed at correcting the distortion in the entire value chain of the power sector, adding that it would galvanise and boost investment in the sector. But aside other misgivings, one of the major grouses of those opposed to the new tariff structure is that Nigerians are being billed for what they do not consume. Indeed, many electricity consumers are billed arbitrary since they are not metered. The regulating authorities have to put an end to the practice which has been manifestly abused. People should only pay for what they consume.

Notwithstanding, the new tariff structure deserves public understanding. First, we must note that in every country, policy measures of this nature which are targeted at increasing the price paid for utilities are usually met with public cynicism and resistance. The fact of the matter, however, is that the retail price for electricity being paid in our country today is far too low to meet the cost of production and therefore cannot attract any investor to the critical sector.

As we stated in the past, part of the reason why the sector collapsed in the mid-80s is the failure of the then vertically integrated Nigeria Electric Power Authority (NEPA) to charge reasonable tariff that covered the cost of generating electricity and could allow for reinvestment in the sustenance and expansion of the grid. Needless to say, Nigerian electricity consumers remain grossly under-served with one of the lowest energy-per-capita rates in the world. That has serious implications not only for individual welfare but also for national productivity and growth.

The epileptic nature of power supply makes Nigeria one of the harshest environments for doing business and also makes the country less competitive. Individuals and businesses have had to resort to self-help through an assortment of generators. Yet privately generated electricity comes at a cost three to four times higher than the rate charged for public electricity. This is aside the negative implications of self-generated electricity on the cost of living, on business profitability, on the incidence of poverty, on health, safety and the environment.

However, we must reiterate that price hike alone will not reform the sector. We need a robust and efficiently managed grid, appropriate incentives to attract necessary investment, and smart regulation. For now the operators are few and well organised and have a disproportionate share of negotiating power while the consumers are dispersed and have disparate interests. The Nigerian Electricity Regulatory Commission (NERC) should ensure we do not return to where the nation is coming from - a monopoly in the sector - in any form. That is the real hard work that must begin immediately.

Going forward, we believe the focus should be on availability. With regular power supply, the economic opportunities open to all would more than compensate for what consumers pay. Therefore, a cost-reflective tariff structure with in-built consumer protection mechanisms and incentives for improving service delivery is necessary. That is the only way of attracting the much-needed investment in a sector that is very critical to the development of the country.

Part of the reason why the sector collapsed in the mid-80s is the failure of the then vertically integrated Nigeria Electric Power Authority to charge reasonable tariff that covered the cost of generating electricity and could allow for reinvestment in the sustenance and expansion of the grid. Needless to say, Nigerian electricity consumers remain grossly under-served with one of the lowest energy-per-capita rates in the world. That has serious implications for national productivity and growth