6th April, 2016
By Obinna Okowa
The recent directive by the Nigerian Senate to the Nigerian Electricity Regulatory Commission to stop the announced increase in electricity tariffs seems to be based on the assumption that the regulatory body and the electricity distribution companies, called DISCOS, have colluded to defraud or cheat the Nigerian electricity consumer. That really is a false assumption and it is very easy to prove so that at least the Senate can see the light and reverse its decision based on this false premise.
The nature of the relationship between the NERC and the discos is like that between a cat and a mouse. Cats catch mice and rats run away from cats. That is the nature of the relationship between NERC and the DISCOS, with NERC the sole regulator of the electricity sector, dictating the rules of the game and waiting to blow foul or give a yellow card when the DISCOS violate the rules of the game on electricity delivery to the Nigerian public. So DISCOS are wary of NERC and do not want to be penalized for breaking the rules because they have invested heavily in the electricity delivery system and are looking forward to receiving their dividends in due course under the aegis of NERC direction and control, and no one else.
It is in this light that we should look at the Senate decision recently that the electricity tariffs increased by NERC and to be collected by DISCOS should be stopped. The DISCOS are distribution agents for the electricity industry and they cannot single handedly raise tariffs and collect at the same time. They can only collect based on the pricing regime adopted by NERC which is cost reflective and ensures that the discos do not make exorbitant profit at the expense of the Nigerian electricity consumer and public. That explains why for now it is NERC that has gone to court to defend the tariff increase even before the Senate intervention to stop the increase. This is because the basic duty of NERC is to ensure that the discos play the game in terms of electricity delivery to the Nigerian masses according to the rules. So in stopping the planned and approved tariff increase we should ask the Senate whose interest it is serving or protecting and what rules on electricity delivery or generation it is following.
Certainly, NERC can defend the tariff increase on the grounds that it is to ensure that the DISCOS function efficiently and optimally. Which means that in the context of the cost reflective pricing regime adopted, the DISCOS must raise the standard of service delivery of electricity to the Nigeran electricity consumer. This is because the DISCOS have a stake in making the service delivery successful because they have a huge commitment in terms of the massive amount they have invested. Yet they are making a huge sacrifice to curb any unwarranted attempt at illegal profit because the rules of the game have been computed in such a way that they cannot make profit until five years later to enable the enabling environment for the correct and efficient electricity delivery to take off. The discos took off in 2013 and would not make profit till 2018. So why is the Senate crying wolf when there is none and what is its business in the matter any way since NERC, the sole authority in the matter, has given the green light for the increase and announced it over a year ago? Definitely, something is fishy with this unwarranted intervention of the Nigerian Senate in the long march to efficient electricity service delivery in the nation and Nigerians are watching and waiting earnestly for the Senate to rescind its order to stop the approved tariff increase.
These are indeed very hard days for NERC – the Nigerian Electricity Regulatory Commission. A court order was issued to restrain the Commission from increasing electricity tariffs which it announced would take effect from February 1 2016. It is subjudice to comment on a case in court so NERC would have to plead its case in court when it has its day in the court. But before this time, NERC has had its authority rubbished by the Senate which on February 16 asked or ordered NERC to rescind the 45% increase in electricity tariffs that it said would take effect from February I, 2016. So, who got it wrong or right between the Senate and NERC? That is the question that we must ask and answer here for the benefit of the Nigerian public and electricity consumers who have become confused and befuddled by this unfortunate chain of events.
By an Act of Parliament or a legislative action and authority, NERC is the sole authority for the regulation of the generation, transmission, distribution of electricity in Nigeria. This authority was vested in the Electricity Power Sector Reform Act of 2005 made during the Olusegun Obasanjo administration from 1999 to 2007. It was in 2007 that the NERC got a board that made it functional having evolved from NEPA to Power Holding Company of Nigeria to metamorphose to NERC as we know it today.
NERC’s duties essentially are to regulate the delivery of electricity to the Nigerian populace efficiently and at an affordable rate for the mutual benefit of both the consumers and the distribution companies called discos in the Nigerian electricity delivery context. This NERC has been doing, albeit with very limited success to the vexation of Nigerians who thought that once NERC had come on board the era of persistent power failure was over. This was not helped by the fact that electricity generation in the nation had become comatose. Our electricity generation is below 5% of our needs and successive Nigerian governments have promised to improve power generation to an acceptable level but none has delivered on this illusory promise so far. In spite of this, NERC has lumbered on hoping for a better day in terms of improved power generation.
It brought on the discos who invested heavily in the distribution system because of their confidence in the Nigerian electricity delivery dream, in the hope that better days would come in terms of increased power generation. The discos were monitored tightly to ensure they do not exploit consumers with flippant and unaffordable tariffs. Indeed NERC stipulated that they must charge cost reflective charges with global best standards in electricity tariffs over 10 years.
It also decreed that they cannot make profit in the first five years when they came on board in 2013. In its own little way and given the constraints it faced, NERC has stabilized the Nigerian power sector such that companies and investors who fled Nigeria because of persistent power failure were, watching and wishing NERC would succeed with the DISCOS and the high quality pricing regime on tariffs which it announced.
.Okowa, an analyst, writes from Aba