Last week, a Federal High Court in Lagos ruled that the recent increases in electricity tariffs by Electricity Distribution Companies (DISCOs) was illegal and ordered that it be immediately reversed, threatening billions in existing and potential investments. While a sustainable tariff rate is needed to forge a path to improved power distribution, its accompanying exploitative practices has contributed to its undoing.
Presiding judge, Justice Mohammed Idris annulled the hike in electricity tariffs announced by the Nigerian Electricity Regulatory Commission (NERC) in 2015. The court held that NERC only complied with one, of all the legal requirements, which was that it announced the new tariffs in the newspapers. He also restrained the commission from taking further steps in increasing electricity tariffs until it complies with the relevant provisions of the Electricity Power Sector Reform Act (EPSRA). In light of the court order, fund providers are likely to argue that the understanding with which they entered the agreement has been breached and the trust with DISCOs would have suffered a setback. DISCOs have appealed the decision, which could restore faith in the sector if successful but are torn between billing the customers next month using the old tariffs or defy the court order and continue billing using the cost reflective tariffs. Either choice would have a telling impact on their losses. With the exchange rate now depreciated by about 80 percent since 2014 and inflation rate above 16 percent, DISCOs are faced with a two-fold setback of debt servicing cost on their vast dollar denominated debt and an erosion of the purchasing value of their income.
Kicking the can down the road
Nigeria’s power structure has been in operation at a tariff rate which is not indicative of the true costs of generating and distributing power. This has contributed to the chronically low levels of power supply which the country now faces. Prices for cost inputs have been fixed at a level not reflective of market realities for decades. For example, gas, used by power generating plants, was set below the market price. Despite the privatisation of majority of Nigeria’s energy sector in 2014, production is still at a meagre 4000 kilowatts (KW), comparable to that generated in Edinburgh, a city with less than a million people. The new management discovered, soon after privatisation, that investors demanded they adopt a cost-reflective tariff before vital funds could be provided for them to refinance acquisition loans as well as invest in network expansion, purchase of meters, power generation and transmission.
Finance will be difficult to obtain within the current tariff structure if the sector is unable to cover their costs and invest in critical infrastructure. A cost-reflective tariff will place the electricity distribution companies in a position to recover their investment costs, while also making considerable profits. Nigerians long for stable power supply and that cannot be delivered under the status quo. Although a cost-reflective tariff does not guarantee future improvements in power supply it is a pre-requisite for a sustainable power sector. The reluctance to embracing necessary changes in the power sector only delays the inevitable.
DISCOs noble aim self sabotaged
DISCOs raised tariffs in order to attract much needed investment in the sector, but the execution has been undermined by a lack of legitimacy and support from ordinary Nigerians. The lawsuit brought forward by human rights lawyer, Mr. Toluwani Adebiyi, challenged the increment, describing NERC’s action as procedurally ultra vires, irrational, irregular and illegal. “We consider it victory for the ordinary Nigerian who has been crushed by exploitative bills,” said Said Ayuba Wabba, Chairman of the Nigeria Labour Congress (NLC). Both men point to important facts. Asking Nigerians to pay a 45 percent increase in electricity bill in return for expected improvements in power supply in 2 to 3 years was always going to be a tall order, but the exploitation of customers under the guise of the a price hike was, perhaps, the tipping factor in consumer sentiments. Many customers received extortionate bills that could be attributed to the tariff hike. “In the last four months our bill has been four times the normal amount,” said Ifeoma, a consumer living in Lagos Island. Her statement is exemplary of the price hikes many Nigerian consumers are faced with. A large population of consumers still receive estimated monthly bills as prepaid meters are yet to be disseminated adequately and existing meters are seldom read monthly. Since the tariff increase, many residents have seen their estimated consumption arbitrarily increase to as much as 10 times the previous bill in some cases. An exponential increase in consumption rate compounded with an increase in the tariff rate has sparked outrage amongst consumers. While consumers with prepaid meters are known to pay monthly bills of N5,000 with the tariff increase, customers receiving estimated bills are commonly charged upwards from N30,000 monthly with some reporting charges of over N90,000. Exorbitant charges and erratic power supply have depleted public support for the policy. Unlike the tolerated fuel price hike that brought an end to long winding queues, the price tariff increase not only fails to deliver improved power supply but is also accompanied by exploitative practices towards consumers.
Nigerians want stable power supply, backed by responsible metering, and this cannot happen with a tariff that is not cost-reflective. But, in order to garner support or at least reduce resistance for the measure, DISCOs will have to tamp down exploitative practices.
