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Anxiety as FG begins electricity tariff review, consultations

By on September 18, 2017

It is 21 months since the Nigerian Electricity Regulatory Commission (NERC) last reviewed the Multi Year Order (MYTO). Daily Trust reports that consultations for the review of the MYTO 2015 activated since February 2016 began Wednesday across the geopolitical zones with that of Abuja holding today.

MYTO 2015 which is a 10 year tariff plan for electricity consumption is to be reviewed every six months in what is tagged ‘Minor Review’ to factor in some production indices like foreign exchange rate (forex), inflation rate, power generation capacity and the price of natural gas to electricity production.

However, NERC did not make any of the review which demands that consultations of customers be made before an adjustment. The former leadership of NERC led by Dr. Sam Amadi completed the review of MYTO 2015 in December but suspended its implementation till February 2016 after they had left office.

The MYTO 2015 saw a hike of electricity prices by almost 50 per cent as all the indices went up. A unique feature of the tariff plan, according to Daily Trust analysis, was the collapse of the Fixed Charge (FC) component. Previously, customers paid from N700 every month even when they did not use electricity.

Although officials said the FC was removed from the new MYTO 2015, analysis of the tariff document shows that it was actually merged with the Energy Charge (EC) – the actual charge for electricity consumed by customers.

The review increased the tariff for a unit of electricity with a Residential 2 (R2) customer under the Abuja Electricity Distribution Company (AEDC) paying up to N24.70 for a kilowatt per hour (kwh) of electricity from about N14 paid earlier.

The implementation in February 2016 drew massive protests from organised labour groups, civil societies and customer groups.

Why MYTO 2015 review delayed

According to the MYTO rule, the tariff is reviewed every six months, but it has not been reviewed three times. Industry watchers attributed the delay in the review to two key constraints at NERC. The first was that the NERC commissioners’ tenure ended a week after signing the MYTO 2015. It took the Federal Government about 13 months to get another set of commissioners, of which the chairman is yet to be appointed.

The law guiding the power sector – Electric Power Sector Reform Act 2005 (EPSRA) -stipulates that there is need for at least three commissioners to form a quorum, so the then acting Head/Chairman of NERC, Dr. Anthony Akah, could not spearhead the tariff review.

The next impediment, according to industry sources, was some consideration that with the rise in the forex rate to over N400, hyper inflation rate and a huge drop in power generation during the recession period, the review would have jerked the tariff so high to the detriment of Nigerians.

The fourth review is coming when the National Bureau of Statistics (NBS) announced the exit of Nigeria from recession, an on-going process for payment assurance for Generation Companies (GenCos) to have more liquidity through the Nigerian Bulk Electricity Trading (NBET) Plc so they can pay for more gas and other services and raise generation level.

The review is coming along with the Eligible Customer declaration by the Minister of Power, Works and Housing, Mr Babatunde Fashola that will allow willing customers to buy power directly from the GenCos. It is expected to trigger more competition and efficiency from the Distribution Companies (DisCos).

The crux of this review is anchored on two strengths: Cutting down the period for the tariff adjustment from six months or semi-annual (twice a year) to quarterly (four times annually), once every month (12 times in a year) or annually (once every year).

The second is the traditional review of the tariff based on production indices that include inflation, forex rate (naira to dollar), gas price and electricity generation output.

Process of on-going MYTO 2015 review

Analysis of the process for MYTO 2015 shows that the major review is done every five years. “Every six months, NERC reviews the MYTO by considering changes in parameters like inflation, exchange rate, gas price, power generation capacity, transmission capacity and the operators’ Capital Expenditure (CAPEX) requirement to adjust the tariff,” a consultation paper issued by NERC on May 30, 2017 read.

The paper, endorsed by the acting Chairman/Vice Chairman, Mr Sanusi Garba, said reducing the review period will provide incentives for continued improvement in services as shortfalls will be promptly recognised and computed into tariffs.

“Electricity consumers will immediately bear the full brunt of risks associated with macroeconomic changes in the economy,” the paper objectively stated.

The consultation continues today in Abuja near the commission’s headquarters and stakeholders are expected to be at the public hearing.

The MYTO 2015 was set on inflation rate of about nine per cent, a N196 to a dollar official exchange rate, $3.70 gas price, and projected 5,000 megawatts (mw) actual power generation, 6,000mw transmission capacity and varied operators’ Capital Expenditure (CAPEX) requirement to adjust the tariff.

The result was an adjustment that saw the tariff rose by about 50 per cent across residential customers and over that level for commercial and industrial users.

The tariff review is expected to be projected on these same indices: inflation rate would be about 17 per cent, N365 to a dollar (about N169 higher), average 4,500mw electricity generation, and 6,500mw transmission capacity alongside the varied CAPEX.

Increase in the differences across the indices may see a significant upward trend of over five per cent which is the threshold for tariff increase. A downward trend of same significance could trigger a tariff slash, officials at NERC had said.

From all indications, unless the Federal Government intervenes by way of subsidy or other mechanisms, the current MYTO 2015 may rise significantly when adjusted. If the consultations scale through, the first adjustment of the MYTO 2015 may be likely implemented from January 2018, the Daily Trust forecasts.

 

[Daily Trust]