‘Our Tariff Increase Is To Have Appropriate Price For Electricity’ | Independent Newspapers Limited
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‘Our Tariff Increase Is To Have Appropriate Price For Electricity’

Tariff
Posted: Jul 21, 2016 at 12:47 pm   /   by   /   comments (0)

Executive Director of the Association of Nigerian Electricity Distributors (ANED), Mr. Sunday Olurotimi Oduntan, in this interview with CHARLES OKONJI, explains some of the challenges of the power firms and their plan to appeal the judgement of the Federal High Court against the tariff increase. Excerpt.

A Federal High court has just given an order that Nigerian Electricity Regulatory Commission (NERC) should reverse its recent increase in electricity tariff. What is your position to this court order?

We are law abiding citizens and we must always obey court’s judgments. For me as a lawyer and a counsel in the tempo of justice, I respect court’s rulings and judgement. In this case, we will obey the court. However, we will appeal the judgement. We will also file for the stay of the execution of that judgement, pending appeal.

The judgement was given by a court of competent jurisdiction and also a court of first instance on the case. This means that we have the right of appeal to the Federal Court of Appeal. The matter may still go to Supreme Court, which is where the finality lies.

Agreed we will obey the judgment, but we are looking at the bigger picture for the industry.  The bigger picture that we all are looking at will ensure that the system does not collapse. So, it is not just for somebody to go to court and secure judgment, but it is also very importance that we all work towards making the sector to succeed. Somebody has to pay for the product. If the product is not appropriately priced and not paid for, the effect is simply that we cannot sustain the industry. So, that is my reaction to the judgment.

Many Nigerians believed that there was no need for the tariff increase. Can you precisely tell us what necessitated the increase in tariff?

When the entities were privatized, there was a performance agreement.  In the performance agreement, there were things that the Federal Government was to do, which was its own obligation, and there were also obligations for the investors who acquired the entities. However, one of the critical things, which were very important for the sector to be successful, was the issue of tariff.  We are not reinventing the wheel. We copied this model from New Delhi in India. Other countries have exactly done the same thing, which is the calculation of tariff and doing all these things.  The Federal Government promised to give us appropriate pricing, from day one, which was 1st November, 2013. Unfortunately, the government did not do that.

The fact is that from day one, the product was not appropriately priced. If the cost of producing your product is N100 and you are selling it at N60, it means that you have not covered your cost. As at the time we bought the entities, we talked of cost-reflective tariff, which means the tariff that will cover your cost of operations – cost of production. We have not even talk of profit margin. So, if you keep on selling the product below the cost of production, the business will collapse – you cannot sustain the business. You cannot even get the required finance to develop, expand and do things that you are supposed to do to improve the business. No bank will lend you money if your business is not bankable. That was what happened in the past.

The same government did not give us appropriate price and no subsidy, unlike the petroleum sector. So, the shortfall started from day one and then, the funding gap. In 2015, one of the classes of our tariff called R2, which is residential class, should have been reviewed, but the government of Dr. Goodluck Jonathan froze that R2, which means that when we are supposed to have proper review of tariff, it was frozen because they wanted to do election.  They did it for political reason.

Nowhere in the world will you tamper with regulation that you know kill the sector.  All those shortfalls till today amounted to about N300 million. Who will pay for it? Where will you get that from? So, for the first time, in December, 2015, NERC rolled out a tariff called Micro 2015, which was to commence on 1st February, 2016. When that one was done in December, 2015, it was supposed to commence on 1st January, 2016, but for the reason best known to the board of NERC, which was headed by Dr. Sam Amadi, they said that it would commence on 1st of February, 2016. I will tell you what that means. In the month of January, who will pay for the shortfall? It means the operators would bear the cost of the shortfall and this money runs in billion.

The tariff took off on 1st February, 2016. Even at that, we are still struggling to even collect the money for the little electricity that we even supplied. We are also dealing with very erratic power supply. Generation has gone down so much. In the performance agreement, there must be light. Electricity will be generated to a certain percentage because the more you generate, the more we distribute and the more we distribute, the more money we can collect. That is why I keep telling people that it is for our interest to give you light. It is when we supply you electricity that we can cover our cost.  If we do not have light to supply to you, it will be very difficult for us to collect the two or three hours that you get because people easily forget. When you get to somebody’s house, he will tell you: “You want to collect money for electricity bill? Where is the light? We only had light two days ago.” Even if you had light for only five minutes, you are supposed to pay for it. So, it has been difficult for us to collect money for the electricity bill when there is no constant light.

A lot of people, out of ignorance of mischief, would say they do not want the electricity tariff. What we are saying, very simply, is that electricity is a product. The tariff, which people are talking about across the board, came up to an average of N27 per kilowatt hour, while electricity cost nothing less than N50 per kilowatt hour. It is still cheaper to get power from the national grid, but the major problem that we have is that people do not like to pay for the service.  Nigerians are the only set of people that will say, “Give us power. We will pay.” But the statistics that we have showed that Nigerians only pay for 40 per cent of what they consumed.

However, we have not done enough on our own part in terms of metering. We met a metering gap of over five million households. Today, it is only 2.8 million households that remained to be metered. We have not been able to fill the whole gap. It is an expensive thing too.  All these things boil down to the same thing. If the collection losses and commercial losses continue to go up, the business will collapse. Commercial losses represent when people steal energy, connecting to the system illegally and people use light without anybody knowing. If I tell you the total number of customers that we have in the whole country, you will be amazed. That is why we are doing customer numeration at different points, which is still ongoing and also, very expensive. At the end of the day, the tariff increase that people are talking about is simply a matter for us to have an appropriate price for the product.  The previous tariff was never appropriate because it was a situation where Power Holding Company of Nigeria Plc was being subsidized by the Federal Government. So, we have never had appropriate tariff until February, this year. But now, you want us to go back to the old tariff, which is below the cost of the product. If we go back, it is not just to be against the operators of the system, but it is going to be against Nigerians.

Before you bought over the power firms, did you envisage all these challenges?

We envisaged that there would be some challenges, but we never envisaged that the Federal Government would not keep to its own side of the agreement, we never envisaged that the government would be owing us N1 billion in unpaid bill, we never envisaged that the Ministries, Departments and Agencies (MDAs) would be using light free of charge and we never envisaged that the military would think that they are above the law. We thought that we have a country where people would learn to have a culture of paying for their bill.