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Power: Investors demand electricity tariff increase

By on May 5, 2014

Power investors have said the current electricity tariff structure is inimical to growth and called for its review.

The investors, who played host to the members of the House Committee on Privatisation and Commercialisation in Lagos during the week, said only an increase in tariff would ensure Return on Investment for them.

According to them, the power assets taken over from the defunct Power Holding Company of Nigeria are not bankable with the current tariff being paid for electricity generated and consumed in the country.

The Chief Executive Officer, Egbin Power Plc, Mr. Mike Uzoigwe, said since the 1,320-megawatt plant was taken over by private investors on November 1, 2013, it had generated and sent N18.3bn worth of power to the national grid.

He said the amount was discounted to N13.16bn by the market operator based on the interim market rule, although the company’s total expenditure within the period was N13.7bn.

As such, Uzoigwe said the power generation company lost N576m between November 2013 and March 2014.

Despite that, he said only N6.5bn had been paid so far by the market operator.

He explained that the new owners of the Genco had valued the output from Egbin power plant within the five-month period under review at N25bn as against the market operator’s N13bn, which he said was about 72 per cent of the company’s invoice.

He, therefore, warned that until the system was made to operate near investors’ invoices’ value, the business would not be bankable and this would not augur well for the industry.

He said, “If you look at the profile of our commitment, the gas that we have used to generate the power that gave us this N13bn has not been paid for. Therefore, what we owe the Nigerian Gas Company is N5.3bn. Meanwhile, we have received only N6.5bn. All the improvement you have seen in the plant, the overhaul, and payment of salary has cost us N7.35bn.

“The total cost we have expended so far is 13.7bn and the cash we were expecting from the market operator was N13.16bn. This is not up to what we have expended and what has been paid so far is N6.5bn. Therefore, in five months of operations, we have actually lost N573m and this money has been financed by borrowing up till now.”

He insisted that the current tariff structure could not support the power investment while adding that it might not make economic sense for investors to continue to do business in such manner.

He said, “Until the system operates near our invoice value, this business is not bankable and this is the worst disaster that can happen to the power industry as it is now.

“The tariff structure is not able to support this kind of business, collection efficiency is not able to support it, therefore, we are generating power and people are using without paying. I understand that it is difficult to increase the tariff so I don’t think the private investors will continue doing business this way. This is not a structure that encourages any further investment.”

Similarly, the Managing Director, Eko Electricity Distribution Company, Mr. Oladele Amoda, said the privatisation expectations of the investors were not just to meet and exceed all stakeholders’ expectations, but to also have a tariff reset based on actual energy received, ATCC losses, customer numbers and absence of subsidies.

He said the company was working closely with the Nigerian Electricity regulatory Commission to look into the current tariff structure.

He said, “We are working closely with NERC for a tariff reset. We will ensure fair tariffs to customers and the industry value chain. We will also reclassify customer classes based on energy consumed.”

According to him, the investors also expect the payment of subsidies in the MYTO II model to make up for the low tariffs.

“We are subsidising some category of customers, which the government promised to pay but up till now, we are not getting it,” he said

The Chairman, NERC, Dr. Sam Amadi, had last year said the commission was facing pressure from new investors to increase electricity tariffs.

Amadi, who was represented by the Secretary to NERC, Mrs. Ada Ozoemena, at a power conference in Lagos, had said the investors based their demand on the assumptions made by the commission in the Multi-Year Tariffs, which they said was inaccurate.

He said, “They are asking for an increase in tariffs and they have some reasons, which are valid. They have told us that the assumptions that went into the MYTO were inaccurate. We used 40 to 50 per cent loss in transmission. So, they are asking for increase in tariff.”

Analysts have warned that any increase in electricity would not be a welcome idea especially by consumers, who have yet to see the impact of private sector’s takeover of the country’s power assets.

The NERC, in a factsheet on the MYTO II, had said cost-reflective tariffs, increased efficiency and stronger regulation were recipes that would improve electricity supply in the country.

 

 

[Punch]