DisCos contend that no one has factored the alarming increase in the cost of imported power distribution equipment like transformers into electricity tariff
Jerry Uwah
Some weeks ago, this column called for the sacking of the 11 electricity distribution companies (DisCos) that have spent more time defending their errors than combating Nigeria’s eternal darkness. Th e article drew fl ak from the industry. Th ere was however a call from a former colleague who now has the unenviable task of laundering the image of one of the embattled DisCos in the north. My friend was very mature in his critique of the article. He acknowledged the facts canvassed in the article but contended that I was jumping the gun by calling for the ouster of the DisCos when the federal government has not kept its part of the agreement in the privatization process.
He was particular about electricity tariff and argued that privatisation agreement provided for the adjustment of tariff twice yearly in the fi rst fi ve years of the programme. However, he lamented that in the three years that the DisCos have operated, there have been less than three adjustments of tariff s. He argued that the last tariff hike which pushed electricity tariff to an average of N23 per kilowatt hour was eff ected on February 2016 when the offi cial exchange rate of the naira was still fi xed by the Central Bank of Nigeria (CBN) at N197 to the dollar. By February 2017, the naira plunged to an all-time low of N520 to the dollar in the parallel market while the offi cial rate was N306. Now the parallel market rate has been dragged back to N365 through CBN intervention, but the offi cial rate remains almost twice what it was when the last power tariff hike became operational last year.
Th e DisCo image maker contended that power distribution is capital intensive and involves huge spending in hard currency. It was gathered that the pre-paid meters that have eluded many homes and foisted fraudulent estimated bills from the DisCos on consumers, were imported from South Africa at a landing cost of $22 per single-phase meter. Th e cost of the meters in dollars has not changed, but their naira value doubled when CBN grudgingly pushed the offi cial exchange rate of the naira from N197 to N306 to the dollar. Th e DisCos contend that no one has factored the alarming increase in the cost of imported power distribution equipment like transformers into electricity tariff . Ironically, the cost of a 50 kilogramme bag of imported rice which was N10, 000 when the last electricity tariff hike came into eff ect, has surged to N20, 000 and has remained so even as the parallel market rate of the naira swung from N520 in February to N365 to the dollar last week.
Despite concerted eff orts by federal and state governments to fl ood the market with local rice, the cost of imported rice has remained adamantly high. Electricity tariff however remains static. Th e DisCos have a point there, but the federal government cannot listen to their demand for tariff hike at a time when the economy is lumbering under the weight of infl ation and recession largely caused by epileptic power supply. Electricity tariff is as sensitive as the pump price of petrol. It aff ects every home in Nigeria. Th e last power tariff hike instantly pushed up infl ation by several notches. Some months after that, the Federal Bureau of Statistics (FBS) repeatedly blamed the persistent infl ationary trend in the economy on power tariff and petrol pump price hikes. Th e federal government considers power tariff and petrol price hikes as politically inexpedient. In fact, power tariff hike could as well be considered economically inexpedient.
Th e only benefi ciaries of tariff hike at the moment would be the embattled DisCos. Th e benefi t accruing to that infi nitesimal segment of the economy could trigger a chain reaction in infl ationary trend, drag down productivity and keep the economy longer in recession. Th e DisCos insolvency is the federal government’s dilemma. No one knows how to tackle it. Th e debt contagion rocking the power sector and crippling power generation, transmission and distribution is not entirely a factor of low tariff . It emanates from low capitalisation of DisCos. Nigeria’s immediate past administration sold the generation and distribution arms of Power Holding Company of Nigeria (PHCN) to inexperienced, cash-strapped cronies who lack the fi nancial muscle to supply enough power to cover their operational costs. Th e DisCos are incorrigibly insolvent.
Th eir incessant demand for tariff hike emanates from the fact that they distribute very small quantity of power that cannot sustain the cost of their operations. Consequently, they cannot leverage on the economy of scale. Th eir operational cost is distributed over very few units of power they distribute. Th at is responsible for the demand for tariff hike to N75 per kilowatt hour. Th e power generation companies (GenCos) have stepped up their installed capacity to 12, 500 megawatts (mw). At the moment, they can wheel 8, 500mw into the national grid. Unfortunately, the DisCos can only handle 4, 500mw at any given time. Th e DisCos remain the weakest link in the power value chain. When their facilities are down, they reject power from the national grid and keep consumers in darkness. Tariff hike might slightly ease their fi nancial asphyxiation, but it cannot guarantee regular power supply. Th eir insolvency can only be addressed by massive recapitalization.
