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Suspending electricity tariff hike will be costly for Nigeria – Discos tell Senators

By on February 19, 2016

The 11 electricity distribution companies (Discos) in the power sector wednesday warned that the order by the Senate asking the Nigeria Electricity Regulatory Commission (NERC) to suspend the electricity tariff hike would come with consequences that the Nigerian economy might not be able to bear.

The Discos said this through their umbrella union, the Association of Nigerian Electricity Distributors (ANED) in Abuja.

They explained in a statement from ANED’s Executive Director, Advocacy and Research, Sunday Oduntan, that implementation of the Senate’s resolution would not be without consequences.

The NERC had approved for the new retail electricity tariffs for various consumer classes under the Multi Year Tariff Order (MYTO-2).
The new tariff regime became operational on February 1, however it has so far elicited harsh reactions especially from the organised labour, which took to the streets across the country last week to protest the hike.

In their protest, labour was able to get the support of the Senate which subsequently directed NERC to suspend further implementation of the new electricity rates.

However, the Senate’s directive was seen by industry analysts as advisory and non-binding on NERC and the Discos.

One analyst said that for the Senate’s directive to be effective, the National Assembly would have to amend the Electric Power Sector Reform Act (EPSRA), which empowers NERC to regulate and approve new tariffs under MYTO.

But listing the impact the Senate’s directive could have, ANED said it had a prior agreement with the federal government before the privatisation exercise that market-priced tariffs which reflect the cost of distributing electricity to consumers would be enthroned in the sector.

It explained that the Senate’s order was in disregard of the agreement and that it raises concern on the sanctity of contracts in the country.

ANED equally added that the absence of a cost-reflective tariff could result in the failure of the country’s electricity market.

“Market-priced tariffs are fundamental requirements under the agreements signed between Disco operators in the Nigerian Electricity Supply Industry (NESI) and the Bureau for Public Enterprises (BPE), raising the concern over sanctity of contracts.

“The absence of a market-priced tariffs creates the possibility of performance failure by the operators. Such a failure will be at a price that the government can ill-afford in these times of dire economic challenges,” the statement said.

The association further noted that “market-priced tariffs are critical to address decades of under-investment in the sector”, adding that electricity worldwide reforms have always been tied to increased investment, resulting in improved production efficiency.

According to ANED, such investments were predicated on access to capital which will be jeopardised in the absence of market-priced tariffs.

It therefore explained that the absence of market-priced tariffs would endanger the viability of the entire value-chain of distributors, generators, the transmission grid and gas suppliers, resulting in the failure of the sector.

Stating that the Discos take just 25 per cent of the entire revenue from the tariffs, ANED said that such potential failure of the sector would result in direct loss of 50,000 jobs currently held by Nigerians.

It said indirect job losses from factories and other business closures would possibly amount to millions, as well as the related outcome of discouraging further investment in the sector and other associated sectors.

“Fellow Nigerians, suspending the implementation of the new tariffs will leave us in continuous darkness, with diminished and no future prospects of growth of our economy,” ANED added.

Meanwhile, the government of Japan has handed over to the management of Jebba Hydro Power, one of the turbines with a generation capacity of 96.4MW that it rehabilitated after a fire incident, thereby increasing available generation capacity at the plant to 482MW
The inauguration in Jebba which followed a 2011 government-to-government exchange of notes between Nigeria and Japan for the repair works was done by the Minister of Power, Works and Housing, Babatunde Fashola.

The Deputy Head of Mission at the Japan Embassy, Mr. Masaya Otsuka, explained that the repairs were done at the cost of N5.2 billion, with Japan providing N3.5 billion while N1.7 billion was provided by the concessionaire – Mainstream Energy Solutions.

The Jebba plant is operated by Mainstream under a concession arrangement under the federal government’s power sector privatisation programme.

The government had after the unit was burnt in April 2009, negotiated with the Japan International Cooperation Agency (JICA) a concessionary loan for the repairs.

Otsuka also disclosed that with the completion of repairs, Japan would be ready to provide Jebba another loan of $800 million to refurbish four more of its generating turbines which have not undergone any form of refurbishment in 30 years.

He said the credit line was part of Japan’s support for Nigeria’s power sector through the Tokyo International Conference on African Development (TICAD) framework, and will include 1.4 per cent concessionary rate for 40 years.

According to him, the loan will be used to rehabilitate and extend the lifespan of the four extra units of the plant so that it can conveniently generate electricity at its 578.4MW nameplate capacity.