The electricity industry has been taunted with barrage of problems, which makes it almost impossible for Nigerians to experience steady power supply. Chika Izuora writes on how the new tariff system could reverse the trend.
Last year, precisely in May, a report conducted by the French Agency for Development (AFD) highlighted the need for Nigeria’s power sector to consider major investments in infrastructure to address the challenges in the sector.
The report revealed that the 11 Electricity Distribution Companies (DisCos) would require about $10 billion investments from new investors to deliver quality electricity services over a five-year period.
The study, which was carried out by a consultancy firm, AF Mercados under the Technical Assistance Programme hinted that, “The 11 DisCos operating in Nigeria would need more than USD 10 billion in 5 years and innovative financing solution must be devised by involving new players.”
In a presentation, the Team Leader of Capacity Building and Technical Assistance Programme (CaBTAP), AF Mercados, Jose Guerra, said the aim of the study was also to contribute to empowering decision makers in making the right decisions in the Nigeria’s power sector.
LEADERSHIP Sunday reports that the failed attempts at financing DisCos led the federal government and its development partners to rethink ways of breaking the vicious cycle by addressing the infrastructure gap and starting from an initial infrastructure gap and severe liquidity crisis, with a revenue shortfall of over $3 billion.
The report traced causes of the shortfall to lack of a cost reflective tariff, customer dissatisfaction and lack of performance in the power sector, which led to inaccessible finance.
In conducting the study, AFD said Mercados worked closely with stakeholders in the sector and the DisCos since mid-2017 following the guidelines of the Performance Improvement Plans (PIP) released by the Nigerian Electricity Regulatory Commission (NERC).
The study shed light on key actions to be taken to solve the liquidity crisis in the sector such as segmenting the electricity market into manageable urban areas, rural areas, and potential eligible customers.
LEADERSHIP Sunday gathered that experts are of the view that there is a need for more investment rather than Central Bank of Nigeria’s (CBNs) interventions in the electricity market.
Investigation showed that N600 billion was already earmarked as second tranche by CBN for Nigerian Electricity Market Stabilisation Facility starting from 2020.
The Service Based Tariff
The Service Based Tariff(SBT), approved by the industry regulator, the Nigerian Electricity Regulatory Commission(NERC), which began on September 1, 2020, has been largely applauded by industry operators.
While the legislative aligned with the unions to challenge the decision on moral grounds, NERC insisted that there will never be a good time for the review, stating that it will ensure that Discos improve on the quality of service as well as a 10-day deadline to install meters for power consumers, who pay upfront.
“There will never be a good time to review the tariff. The interest here is to ensure that Nigerians are migrated to a threshold where there will be continuous improvement in the quality of service delivery”.
“NERC added, “ The proposed serviced-based tariff review which comes into effect by 1st September 2020 will only affect customers that live in areas where their Discos promise to provide them electricity for at least 12 hours”.
“The SBT will operate a progressive regime and the customers that receive the highest quality of service (12-24 hours per day) will pay the highest tariff. Customers that receive under 12 hours of service per day will continue paying their current tariff, that is, no increase on September 1,” the regulator noted.
The NERC insisted that the SBT is designed to protect the poor, noting that only the wealthy customers in the areas that receive over 12 hours service will experience tariffs increase.
It argued that the service-based tariff will relieve the government of paying electricity subsidy on the rich and allow it to divert scarce resources to more pressing sectors, including education and healthcare.
“The tariff review is only expected to affect less than the richest 25 per cent of the population living in the most prosperous areas of the country. The richest 10 per cent of the population will cover as much as 50 per cent of tariff increase” it added.
The NERC reiterated that when the deal with Siemens becomes operational, it will improve the power supply in the country, noting that the World Bank, ministry of finance , budget and national planning as well as the Central Bank of Nigeria (CBN) were working towards an extensive mass metering programme to close the gap by providing as many as 6 million meters .
It said that the service reflective regime is built around the incremental improvement in the quality of supply, stating that depending on the historical supply pattern, customers will observe increased hours of supply as the Discos migrate them to higher service bands . “Ultimately, customers will pay for service commensurate to the number of hours they receive,” NERC maintained.
A UK- trained, COREN registered, chartered power system professional, Engr. Idowu Oyebanjo, said: “As one of the first to advocate and support SBT, it is imperative to emphasise that there will be teething issues and problems which need to be addressed”.
“Different methodologies have to be put in place to ensure the intention is ultimately realised. I think we have to appreciate that power systems engineers are the ones in charge of NERC now and this has to continue for at least fifty years before any tinkering with the leadership structure that brings lawyers, economists and accountants back in affairs”.
“I do not recommend such a backward “return to mediocrity”. Apart from initiating the franchising concept in electricity distribution networks, NERC proposed the SBT innovation, as service reflective tariffs will commence from 1st September, 2020.”
Oyebanjo observed that the SBT will only affect customers that live in the areas where their DisCos promise to provide electricity for at least 12 hours per day.
Thus, he said, there is a need to obtain from the DisCos, a list of substations, feeders, distribution transformers (DTs) and customers classified or designated in this category.
Oyebanjo, who is also the chief technical officer in charge of the Presidential Power Initiative (PPI) handling the Siemens’ deal with Nigeria said, “There has to be a methodology to obtain independent information from consumers from the SBT defined areas regarding power supply status in real time, so as to compare this with the inputs from remote monitoring schemes.”
He pointed out that creating a benchmark of performance levels as well as having adequate monitoring of progress are mandatory.
For the consumers paying SBT, he noted that, “It is important to determine ab-initio, a mechanism to compensate them for failure of the DisCos to meet the Service Levels Agreements (SLAs) using an incentive/reward/penalty scheme. It has to be made clear to consumers in this category how they will get that compensation. It has to be automated”.
Under this regime, he stressed that customers that receive power for 12 to 24 hours per day will pay the highest tariff.
“Therefore, it becomes expedient to obtain the list of those who are metered and unmetered in the category, establish benchmarks and monitor progress towards metering.
The plan is that unmetered customers will not pay higher than any metered consumer on the same DT. For customers that receive power for less than 12 hours per day, they will continue to pay their existing tariff.
Some have argued that the government is insensitive to the plight of the poor in proposing a discriminatory tariff in the power system.
Effectively, he said, this aims to make it possible for the rich in the society to pay more for electricity consumed. But NERC posited that only the wealthy people in the areas enjoying upwards of 12 hours of power supply per day will pay increased tariffs.
“Certainly, the SBT will reduce the amount used for endless bailouts and subsidy in the NESI, he corroborated.
“This savings in subsidy should be added to the consumers assistance fund and used appropriately”.
“A fully independent system operator is required. We also need a task force which will review the success factors of the years from 1960 to 1990 (NEPA in “the good old days”) and the experiences of those who managed the transition to privatization in 2013, so as to be able to get a new roadmap for the power system envisioned by Britain and others who built the Nigerian Power System.” he said.
How SBT Will Benefit Discos
Reacting to the SBT regime, spokesman of the Eko Electricity Distribution Company(EKEDC), Godwin Idemudia, said that, “The SBT will afford the entire electricity industry the opportunity to have more funds to invest back into the sector”.
Idemudia told LEADERSHIP Sunday that before the SBT, they experienced paucity of funds in the sector.
“After we met our monthly obligations, we were left with little to work with. With the new tariff regime, we are now obligated to improve and sustain our services as well as invest heavily on infrastructure. We have put our customers in 5 different bands”.
“For us to improve, customers on Bands D and E, which their tariffs are currently frozen, (meaning that their tariffs remain the same) must experience increase in hours of supply for them to join the SBT,” he pointed out.
Idemudia disclosed that customers under the Bands A, B, C have an average number of minimum hours of supply daily which we must not go below.
Nonetheless, the EKEDC has been adjudged one of the best performing entities in the industry even before the tariff review.
This was recently affirmed by the NERC chairman, Prof. James Momoh, who recently endorsed the Eko DisCo as a pacesetter and best performing electricity distribution company in Nigeria.
Momoh said: “Since I assumed office as the chairman of NERC, Eko Disco has been the leader among its peers in terms of performance and all measurable indices. They have been impressive in automation, metering, minimum remittance, commitment to service improvement and importantly, in the reduction of the Aggregate Technical Commercial and Collection (ATC&C) losses. They have remained the industry leader, pacesetter and the best”.
Prof Momoh also praised the company for its role in the adoption of new technology and advancement of its processes. He charged the firm to carry on with its excellent performance in the electricity space and called on all employees of the Nigerian power sector to put in their best as they are the engine room expected to drive the sector to the desired heights.