No to electricity tariff hike

General discontent was the immediate response to the proposal by the federal government in conjunction with electricity generation and distribution companies to further increase electricity tariff by July, this year.
The reasons for the public disgust, of course, are not far-fetched. Generation, transmission and distribution of electricity have been nothing but satisfactory. In fact, since the inception of the privatisation of the energy sector in 2013, most Nigerians hardly enjoy up to three hours of supply of electricity at a stretch per day, leaving them with generating sets to fill the gap for those who can afford and maintain them.

We cannot but agree with the fact that electricity tariff hike at a time Nigerians are battling with the economic recession would further compound their woes in view of the domino effect the exercise would have on their pockets. Already, prices of food and other essential consumables that form the basic needs of the citizenry are daily skyrocketing largely due to the upsurge in the foreign exchange market.

In canvassing for electricity tariff hike, the federal government says it plans to use the tariff hike as one of four options to generate and recover the $7.6bn (about N2.4trn) it would inject into the ailing power sector in five years with a view to reviving it.
Details of the options as contained in the Power Sector Recovery Plan (PSRP), a document formulated in March by the Office of Nigeria’s Vice President and the World Bank Group (WBG), indicated that the federal government will adopt the hiking procedure as outlined in the Multi Year Tariff Order (MYTO) 2015, which provides for biannual upward adjustment in tariff up till 2021.

The first tariff hike option is to freeze tariffs for all classes of electricity consumers until July 2019. Government believes this decision will help it recover the N2.4trn ($7.6bn) it is sinking into the sector from now to 2021.
Option B is to hike tariffs for all classes of consumers by January 2018. This option will fetch about N1.7trn (about $5.4bn) to be spent in the 5-year period. However, the balance of $2.2bn (N697.4bn) may not be recovered within the period.
The third tariff hike option, which is considered by some as the most urgent, is to increase tariffs in July 2017. The option will fetch the federal government about N1.3tr ($4.1bn) in the 5-year period, but that will leave the government with a balance of $3.5bn (N1.1trn) to contend with.

The fourth option is to hike tariffs by 50 per cent in July 2017 for industrial consumers only. The non-vulnerable residential and low commercial consumers will feel the heat by January 2018, while the vulnerable ones (consumers in the lowest class) will pay higher by July 2019. Government believes taking the decision could raise N2.3trn ($5.9bn), leaving a balance of $1.7bn (N538.9bn).
The document further revealed that government intervention arises from the present liquidity crisis in the power sector because of consumers’ apathy to pay bills in the post-privatisation period, poor regulatory compliance, foreign exchange fluctuations, and vandalism, among others.

The non-payment of bills has led to lack of investment by the Gencos and Discos, and it ultimately resulted in epileptic power supply that causes Nigeria to lose $29.3bn (N9.2trn) annually as well as electricity market shortfall of N470bn and tariff deficit of N458bn between 2015 and 2016.
Also, the federal government has insisted on escrowing the accounts of the 11 Discos for three months for a midterm forensic audit to determine the inflow and outflow of finance and thus be in a position to know what it would have to support them with from experts’ review of the Aggregate Technical, Collection and Commercial (ATC & C) losses.
Though this has been controversial, government has remained convinced that escrowing their accounts will best address the hiccups in the operations of the power sector and ensure transparency and accountability.
The government has equally proposed a statutory budgetary allocation of about $700m (N221.9bn) annually till 2021 to meet the estimated target of $7.6bn in five years.

The 2017 budget proposal has N564bn allocation for the power sector which is N343bn higher than the annual benchmark, if specifically directed at the recovery targets.
Laudable as the proposal in the PSRP document is, we think it still does not warrant a hike in electricity tariff because so far, neither the generation nor the distribution companies have done enough to meet consumers’ satisfaction which would have naturally snowballed into a corresponding increase in service cost.
Increasing the tariff may not change anything if the operators’ collection deficiency is not addressed. The Discos in particular would need to do a better job on their collections before anyone can talk of an increase in tariff.

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