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Electricity: Experts differ as DisCos await regulator’s approval to effect tariff hikes

*As the Electricity Distribution Companies await the Nigerian Electricity Regulatory Commission’s nod to activate new power tariffs, analysts have described their proposal as ‘unjustifiable, inappropriate and insensitive’ even when the companies have failed to meet least 5,000 Megawatts of ‘electricity supply threshold’ to consumers a year after signing contracts with the industry regulator

Isola Moses | ConsumerConnect

The Nigerian Electricity Distribution Companies (DisCos) may have backed down on their proposed 40 percent increases in power tariffs in the country.

ConsumerConnect reports the companies’ sudden volte-face followed apparent confusion over the much publicised plan to hike electricity tariffs effective from July 1, 2023.

Various public notices from some of the DisCos  Sunday, June 25, had stated that electricity tariffs would be raised between 30 and 40 percent for selected categories of consumers.

Dr. Muda Yusuf, CEO of CPPE 

The Nigerian Electricity Regulatory Commission (NERC) Monday, June 26 also, reportedly issued a conflicting directive in regard to the DisCos’ proposal to jack up electricity tariff in Nigeria.

The DisCos later clarified that they had not got a definite approval of the power regulatory Commission to increase tariffs for electricity consumers.

It was learnt the Abuja Electricity Distribution Company (AEDC) also backtracked on its earlier announcement of a tariff increase hours after it had issued a notification.

In his comment on the latest development in the electricity industry, Dr. Muda Yusuf, an economist and Chief Executive Officer (CEO) of the Centre for the Promotion of Private Enterprise (CPPE), said the proposed review smacked of insensitivity.

Yusuf’s position on the issue of power tariff increments is in line with that of the Manufacturers Association of Nigeria (MAN) and other business organisations in the country.

NERC yet to approve tariff increments -Regulator, DisCos

The AEDC, in a public announcement to its customers, further urged them to ignore the company’s previous announcement of upward tariffs review.

The company hinted that NERC was yet to approve the increase.

“Please, disregard the communication circulating in the media regarding the review of electricity tariffs.

“Be informed that no approval for such increment has been received. We regret any inconvenience,” AEDC stated in a message to consumers.

However, the AEDC a couple of days earlier, had issued a public service announcement to the effect that the DisCo would increase electricity tariffs effective from Saturday, July 1 this year because of the soaring Foreign Exchange (Forex) rate from N441 2022 to about N750 or more as of now.

Sources also discloses that the DisCo might have backed down under pressure to put the review on hold for now.

Other DisCos contacted feigned ignorance, saying that NERC is the appropriate body to speak on tariffs, The Nation report said.

They also clarified that they had not received a directive on tariff increase from NERC, which is the industry regulator.

An unnamed senior manager in a leading Lagos-based DisCo reportedly said: “We have not been advised or directed on such.

“The NERC is the only body that can order us on tariffs review and we have not received any correspondence on this from NERC.

“So, we are also watching the speculation that has filled the air.”

Other top officials of some DisCos, who preferred anonymity, noted that going by the development in the Forex market, electricity consumers should be aware that what  electricity Distribution Companies earlier budgeted for at the old exchange rate of N441 to a Dollar has since spiked.

According to them, the implication is that more money is expected to be pumped into providing the required service to  consumers.

Likewise, Ayeni Akinola, Spokesperson for the Ikeja Electricity Distribution Company (IKEDC), who described the initial trending circular as “fake”, reportedly advised consumers with prepayment meters to purchase energy units in bulk before the price increment takes effect from July 1.

The circular had stated: “If you have a prepaid meter, buying bulk energy units for your home or office before the end of the month may help you make some savings before you have to buy at the new rate.

“For those on post-paid (estimated) billing, a significant increment is imminent in your monthly billing, starting from August.”

Mary Anavhe, Assistant Manager, Communications at NERC, also dismissed an imminent increase in electricity tariffs in the West African country.

What the Multi-Year Tariff Order (MYTO) schedule provides

Electricity tariff review, either increase or decrease, is a bi-annual exercise as provided for in the Multi-Year Tariff Order (MYTO) schedule for the sector.

Relying on Section 76 of the Electric Power Sector Reform Act (EPSRA) 2005, the NERC adopted the MYTO methodology for electricity pricing in Nigeria, which offers the basis, pricing principles and procedures for effecting minor and major reviews of electricity tariffs in Nigeria.

The MYTO provides a tariff path for the electricity industry, with biannual minor reviews to take into account the impact of changes in a limited number of parameters, specifically inflation, dollar exchange rate to naira, natural gas price and available generation capacity, and major reviews every five years.

Similarly, Section 9 of the ‘‘Regulation on Procedures for Electricity Tariff Reviews in the Nigerian Electricity Supply Industry’’ allows for Extraordinary Tariff Review.

The proposed increase is coming in spite of the fact that operators have not been able to meet the threshold of supplying, at least, 5,000 megawatts a year after signing contracts with NERC.

NERC’s current Service Based Tariff (SBT) was benchmarked on an exchange rate of N441/$ and inflation of 16.97 percent.

In regard to the inflationary rate in Nigerian economy, the current  inflation rate is 22.41 percent, a figure that experts said might hit 30 percent by the end of July this year, given the floating of the Naira and petrol subsidy removal.

Tariff increments lack justification: Yusuf

Yusuf, again, faulted the proposed increases in electricity rates.

The economic expert said that the timing is wrong,report noted.

According to the CEO of CPPE, though the DisCos are private companies out to make profit, their services are of great social significance to Nigerian consumers.

“It is often a dilemma when the private sector is playing a dominant role in the delivery of a service, which is social in nature or quasi-social.

“Nonetheless, it is difficult to accept the exchange rate argument to justify the increase,” stated he.

Yusuf further contended “the truth is that for over 80 percent of companies, product pricing has always been based on parallel market exchange rate, or close to it.

“Not up to 20 percent of companies had unfettered access to the official Forex window for all their Forex needs.”

The expert as well said the recent Forex unification argument being put up by the DisCos could not justify the proposed tariff increases.

An advocate of a free market economy, the expert, however, warned that contemplating such an increase at this period when millions of Nigerians are still grappling with the shocks of the fuel price increase is wrong.

He stressed that “it is most inappropriate and even insensitive to come up with a price increase of such magnitude at this time when many households are still struggling to adjust to the phenomenal increase in petrol prices.

“We need social stability for any business to thrive. Many other businesses are also impacted by the exchange rate unification. But not many have increased prices so phenomenally.”

Power operators taking advantage of ‘monopoly privileges’

Yusuf further noted that the DisCos seem to be taking advantage of monopoly privileges in the country’s economy.

He stated: “We recommend that both the timing and rate of tariff changes should be reviewed in the interest of social stability.”

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