THE Nigerian Electricity Regulatory Commission hit consumers below the belt yet again last week when it announced impending increases in electricity tariffs without addressing the fundamental structural problems in the sector. It is the latest episode in the unending servitude of the government to the second rate investors that took controlling interests in the privatised power assets at the expense of the economy. Will the Muhammadu Buhari administration also betray the people’s trust by caving in to narrow vested interests?
Sam Amadi, the Chairman of NERC, whose loyalty appears to be with the under-performing power distribution companies rather than the Nigerian people, was in his voluble element when announcing the impending increases. As he told Bloomberg, the tariffs will range from five per cent to 40 per cent, though proposals by the DisCos range from 32 per cent to as high as 83 per cent for commercial consumers. The report was silent on the more substantial issues of service delivery, un-metered consumers and “crazy bills.”
We assert that the major task for NERC is to compel the DisCos to immediately give prepaid meters to every consumer and stop the extortionate and primitive practice of arbitrary bills, labelled “estimates.” Instead, it has repeatedly approved tariff increases beyond the schedule laid down in the Multi-Year Tariff Order and the Electricity Power Reform Act, according to the Nigerian Electricity Consumers Advocacy group.
Recent comments by Vice-President Yemi Osinbajo are doubly ominous, reminiscent of the detachment of previous governments from the people and global economic trends. Addressing a meeting of the Manufacturers Association of Nigeria, he said, “…if we want to have a cost-effective tariff, …the only way is to ensure that we are paying and compensating the value chain − from generation to distribution,” adding, “The GenCos are producing power, but they expect to be paid for all the power they produce. Now, if 40 per cent is lost, but they have to pay for it somehow. So government has to come in and play some kind of role to ensure the entire value chain is paid for.” He went on to emphasise that “tariffs cannot remain at that level….”
We deplore this simplistic way of tackling a major sector that has laid the economy low and constitutes a major national disgrace. Last week, the Transmission Company of Nigeria reported that power generation stood at 4,274 megawatts in the month of October, in an economy that the World Bank now estimates to be worth about $568.5 billion and population of 174 million persons. Observers often compare this to South Africa’s 42,000MW, with a population of 53 million and a GDP of $350.6 billion. The fundamental problems of the power sector are the flawed ownership of the DisCos and GenCos, and foreign direct investment. The DisCos are tormenting Nigerians by refusing to give all prepaid meters.
By bungling the privatisation programme, thereby shutting out genuine international investors and transferring them mostly to hastily floated Nigerian consortia that lack the technical and managerial track record, we cheated ourselves of massive infusion of FDI that would have come from established power sector brands. Truth is, there was, and there is still, no Nigerian company that has the technical and financial clout on its own to attract the billions of dollars in investment needed to transform our power sector. The $40 billion (by some estimates) that the government splurged on the sector over a 10-year period largely went down the drain, effectively adding just over 2,000MW to output.
We have given up on Amadi, who has been repeatedly told by the business community, ordinary Nigerians and even legislators to compel the DisCos to give prepaid meters to customers. Going by their atrocious bills, it is obvious that the consumer debts claimed by them are partly fictitious, phantom billings for power never supplied. The 60 per cent un-metered consumers are subsidising the DisCos. The hikes have also been condemned as outrageous and unempirical by MAN and the Nigerian Association of Energy Economists.
It is neither the business of the government nor the oppressed consumer to bear the losses and loan repayment liabilities of incompetent investors. A genuine and experienced investor would have undertaken thorough due diligence before plunging into uncharted territory. In Pakistan, the power liberalisation begun in 1994 featured a power purchase agreement with American, British, Canadian and local firms after due diligence on losses, prices and associated issues. In similar liberalisation and privatisation schemes in the Philippines and Portugal, it is reputable American, Hong Kong, British, Japanese, Finnish, German, French and Spanish firms that are mobilising FDI, while an American firm leads Kazakhstan’s privatisation plan.
The current managers of our power sector cannot deliver. You cannot give what you don’t have and it will be an irredeemable blunder for the Buhari administration to attempt to continue subsidising the DisCos. The DisCos refuse to roll out prepaid meters because that will force them to receive payment only for power supplied. For operators with huge debts to service, gas and other bills, that will spell insolvency. For now, the government, NERC and the DisCos are in an unholy alliance to rob Nigerians and this is unconscionable. The principle of capitalism is free entry and free exit. An inefficient enterprise deserves to fold up and be replaced by competent entrepreneurs. It was the then vice-president, Namadi Sambo, as statutory chairman of the National Council on Privatisation, that oversaw the flawed auction of the DisCos to investors that cannot deliver; Osinbajo should break from that mould.
The change slogan that swept Buhari and Osinbajo to electoral victory demands that they urgently re-visit the privatisation and invoke all necessary legislation to compel performance or revoke the perpetually under-performing sales. The issue is not tariffs: it is about paying only for what you consume. Amadi has outlived his usefulness and, unlike in the telecoms sector, set the industry on a shaky foundation. This government will fail in its bid to revive the economy unless it gets the power sector right.