OPSN urges government to suspend proposed increase in electricity tariff

Success Damian:

 

The Organised Private Sector of Nigeria (OPSN) has called on the Federal Government to suspend the proposed increase in electricity tariff in the best interest of the Nigerian economy.

The call was made in a press statement by the Nigerian Association of Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA) on behalf of The Organised Private Sector of Nigeria (OPSN). 

The group stated that the proposed increase in electricity is not business friendly, and will have a catastrophic impact on the real sector; spell doom for the small and medium companies; and further inflict misery on the citizenry. “Therefore, the proposed tariff increase should be suspended in the best interest of the Nigerian economy,” the statement read.

It further stated that even if electricity tariff cannot be reduced, it should not be increased. “Any increase in tariff will reinforce the already high cost of doing business for the Private Sector and further depress productivity in the manufacturing sector.”

It said that Government being a major stakeholder in the electricity industry should concentrate on developing processes and polices to attract significant investment to encourage scale generation with improved transmission and distribution infrastructure in the industry. It said that Evolution of a more realistic tariff structure that will support the growth of the sector is very critical at the moment and so  Government should review the privatization/unbundling of the electricity industry in the best interest of the over two hundred million of Nigerians.

The statement read in part “Position of the Organized Private Sector of Nigeria (OPSN) on the proposed increase in electricity tariff by the Nigerian Electricity Regulatory Commission (NERC).

The leadership of the Organized Private Sector in Nigeria (OPSN) appreciates the efforts of the Nigerian Electricity Regulatory Commission (NERC) to ensure and sustain improvement in electricity supply and seamless operations of the Nigerian Electricity Supply Industry (NESI) for the benefit of the country as a whole and private business in particular. This is reflected in a number of regulatory interventions to ensure that stakeholders operate in line with the set guidelines. In particular, the Order on the Transition to Cost Reflective Tariffs in the Nigerian Electricity Supply Industry (Order No: NERC/198/2020), released on Tuesday, 31st March 2020.

Also worthy of note is the Press Release dated 31 March 2020, issued from the Office of the Honourable Minister, Federal Ministry of Power titled COVID-19: Minister’s Statement on Tariffs and Palliative Measures for the Power Sector. This Press Release from the Federal Ministry of Power referenced the NERC Order announcing a 3 month delay in the implementation of the Tariff measures, and also indicated inter-alia, that there will be no tariff action in APRIL, 2020.

Even though Order No: NERC/198/2020 specifically states that “there shall be no increase in tariffs of end-use customers on April 1, 2020”, the recently concluded nationwide stakeholders’ engagements and the just concluded review panel sessions with the eleven DisCos alluded to the fact that there could still be an increase in electricity tariff this year. This was also confirmed in the Statement from the Ministry of Power which says “...Tariffs will only be raised as the DisCos improve quality and supply, meter consumers and agree with consumers on rates.”

Against the background of the foregoing, the OPSN wants to use this opportunity to draw attention to some obvious questions that readily come to mind, which are also captured to some extent, in the summary of the findings of Order No: NERC/198/2020: They are the following: Should any increase in electricity tariff be approved by NERC in the face of the prevailing inadequate electricity supply?

Why has NERC not addressed the issue of current exploitative tariff structure that is skewed against the private sector but increased liquidity in the coffers of the Discos?

Is the level of improvement in electricity distribution and associated infrastructure commensurate with previous upward reviews in electricity tariff?

What is the level of investment and achievements made by the DisCos in reciprocation for previous reviews?

Is NERC satisfied with the current high-level inefficiency that pervades the operations of the DisCos?

Are the prevailing macroeconomic fundamentals including the backlashes of COVID- 19 congenial to an upward review in electricity tariff?

The Private Sector Performance and Electricity Supply

It is fundamentally true that improvement in electricity supply in terms of tariff, quantity, quality, reliability and efficiency in service delivery is critical to the growth and development of private sector businesses, especially manufacturing. This is the major reason why the OPSN has followed with keen interest, all recent developments relating to issues of electricity supply, particularly the desire to put in place a cost-effective electricity tariff in the industry. 

For the records, private business operators in Nigeria, especially the manufacturing sector are already plagued by high cost operating environment arising from poor regulatory environment, macroeconomic asymmetries and high cost of energy. This unfriendly operating environment is responsible for the oscillatory performance of the sector in the past few years. For instance, Electricity outages averages about 10 hours per day, electricity expenses still constitute about 40% of total cost of production and the average cost of self-generated electricity averages N119 billion in 2019 alone. Most worrisome is the fact that operators in the Private Sector, especially the manufacturing sector bear the burden of commercial and technical losses through very high monthly electricity bill that is largely estimated.

General Observations on the proposed increase in Electricity tariff

The OPSN has observed that despite numerous increases in electricity tariff, the sector is plagued by poor generation and transmission. Likewise, inefficient distribution and inadequate supply remain crucial challenges facing private sector operators, particularly those in manufacturing. It is therefore important that any upward electricity tariff that will add up to the already bloated cost of production in the sector should be avoided. One would believe that before embarking on this outrageous increase in electricity tariff, its impact on the manufacturing sector and the economy at large would have been properly evaluated to mitigate a crowding out effect on the economy.