DisCos, GenCos’ bitter pill for FG

Electricity distribution companies (DisCos) have handed the Nigeria Electricity Regulatory Commission (NERC) a long list of demands for taking Nigeria out of its eternal darkness.  Probably the most nauseating item in the list is what is derisively tagged the “mother of all tariff hikes”.
The DisCos want the industry regulator to approve a tariff hike that would compel the lowest residential consumer to pay N75 per kilowatt hour of electricity.

The current rate is about N23.
With the protests against plummeting standard of living in the country escalating by the day, government would be reluctant to approve a power tariff hike that could push inflation rates through the roof.
But the DisCos are adamant.  They have given the federal government a very bitter option to the “mother of all tariff hikes”. They want government to subsidise electricity bills if it cannot ram it down the throat of consumers.

But government’s hands are full. In a desperate bid to stem rising inflation, the federal government has slipped fuel subsidy into the system through the back door.  In fact the subsidy is from two ends.  Government has held down the pump price of petrol at N145 per litre, even as the landing cost is above the open market pump price.  Besides, government is selling foreign exchange for fuel imports to marketers at the subsidized rate of N305 to the dollar.
Even at the subsidized exchange rate, marketers are not importing petrol because with crude oil price hovering around $55 per barrel, the landing cost of petrol is well over the open market pump price.  Consequently, the Nigerian National Petroleum Corporation (NNPC) is the sole importer of petrol.

Government is handling the transaction in a rather clandestine manner.  There is no provision for fuel subsidy in the 2017 Appropriation Bill still being debated by the National Assembly. But government is subsidizing a litre of petrol at the moment with a minimum of N14.  With the landing cost of petrol now above N145 per litre, government still sells to marketers at N131.30. The at least N280 million is spent daily on fuel subsidy without the National Assembly appropriating funds for the scheme.  The NNPC simply writes off the subsidy as trade losses in its books.

With members of the Organisation of Petroleum Exporting Countries (OPEC) poised to enforce the production cut that could eventually push oil price to $60, we may be heading to a point where fuel subsidy would hit N20 per litre.
The only saving grace is that the high cost of fuel and the decision not to pay subsidy to marketers for imported fuel has drastically reduced consumption.  In the past, a grand conspiracy between dubious marketers and fraudulent officials of the Pipelines and Products Marketing Company (PPMC), and the Petroleum Products Pricing Regulatory Agency (PPPRA), had escalated fuel consumption figures on paper to 45 million litres, even as the economy was plunging into recession.

Now with the new measures in place, some sources put daily consumption of petrol at 20 million litres.  The stringent measures have cut consumption by half.  Despite oil price increase, low production keeps government’s revenue below target.
Ironically, DisCos want to add their own burden to government by calling for electricity tariff subsidy.  Given the precarious financial situation of the DisCos and other stakeholders in the nation’s power industry, there will be no end to electricity tariff hike.

The DisCos, the power generation companies (GenCos) and even the Transmission Company of Nigeria (TCN), the only arm of the power supply chain still fully in the hands of the federal government, are in advanced stage of financial asphyxiation.  They are all crippled by endemic debt contagion. The federal government has no solution to the debt crisis in the industry. Government itself is a major debtor in the industry.  TCN, government’s holding in the industry, is heavily indebted to the GenCos.  Government ministries and agencies owe DisCos billions of naira in electricity bills.  Most of them have become bad debt.

The power sector privatization programme is a colossal failure.  If government lacks the political will power to terminate the sales and call for fresh biddings, the option is to invest in a cheap source of electricity generation that would break the merciless grip of the GenCos and DisCos on hapless electricity consumers.
That option is solar energy.  It is cheap, efficient and faster to establish.  The world has switched to solar panels for electricity generation but Nigeria with a weather that ensures sunshine throughout the year is still battling with the gunmen in the Niger Delta over the control and protection of gas pipelines that have become cheap objects of blackmail.

A mini solar panel field that could generate five megawatts of electricity could be constructed with N1 billion. If the federal government invests N100 billion in solar panel fields across the country, we would have added 500 megawatts of cheap electricity to the dwindling capacity of the GenCos.  A gas-fired power plant that would generate that much electricity would cost three times that amount and the tariff to consumers would be escalating by the day.  Solar panels are the best option to the blackmail of the GenCos and DisCos.

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