Regulatory Imperatives For The Service Based Electricity Tariff Regime
By Dr. U. Eke
Nigeria’s electricity supply problem has persisted over time with different solutions proffered and implemented without significant improvement, even when it was obvious that significant economic development in the country can only accompany quantum improvement in public power supply. The only significant variable in the power sector equation in the country had been the increasing government expenditure on power supply infrastructure. The huge government expenditure in the sector, compelled various multilateral organizations lead by the World Bank, mount pressure on government to privatize the sector, arguing that privatization will bring about huge private capital inflow and know how into the sector resulting in improved efficiency.
The power sector was eventually unbundled in 2013, bringing in 6 private power generating companies (GenCos) and 11 distribution companies (DisCos). Unfortunately, the arrival of the private operators, have not significantly improved service quality. The issue of non supply of electricity meters and associated estimated billing still ranks highest on the list of consumers complaints. While the consumers complained, the operators like Oliver Twist used every means to canvass for the implementation of cost reflective pricing regime, arguing that they cannot improve efficiency with the subsisting uncompetitive Multi-Year Tariff Oder (MYTO) pricing regime.
At the height of the private electricity operator’s complaint, a combination of factors, including government’s dwindling revenue following the crash in oil prices and the global covid-19 pandemic, government in September 2020, was compelled to not only increase electricity prices, but also to completely deregulate the downstream oil sector. The electricity price increases came in the form of a service based tariff regime, which classifies the consumers into five groups according to service levels and minimum hours of power supply. Since the government took these twin energy sector actions, the affected private sector energy operators have been celebrating while the consumers have voiced their opposition expectedly.
One of the arguments by those who have some reservation about the electricity price increment warrants further examination. Such an examination is not aimed at critiquing government’s action but ensure that consumers also benefit from the action. Of particular importance here is the argument, that introducing cost reflective pricing regime via the service based model, may worsen the woes of most electricity consumers. Those who hold this view are of the opinion that, the service based pricing will provide the DisCos an incentive to focus power supply only on few areas where they generate the maximum revenue while neglecting the fringe but majority of the low end consumers. Of course the profit maximizing private DisCos with eyes fixed on bottom line will not bother about investing on improving or expanding distribution infrastructure to disparate low cost areas unless compelled to do so.
Energy economics informs that a privatized power market can only be sustainable if, it satisfies the accessibility, affordability and reliability conditions. In other words, a sustainable power market should provide reliable and affordable power supply and be such that electricity is available for consumers, who need it to access it. By diverting electricity to only those that can afford to pay higher prices, the DisCos will be further dampening the access to electricity ratio for the country which according to the World Bank Sustainable Energy for All (SE4ALL) database for 2018, stood at 56.5% as against neighboring Ghana with 82.4% and South Africa with 91.2%. Electricity access correlates strongly with economic development. It is not difficult therefore to see why South Africa is way ahead of Nigeria, while the Companies that hitherto operated in Nigeria are all relocating to Ghana.
The current electricity market in Nigeria is clearly not sustainable as it fails in all three sustainability indicators, and it is government’s objective to bring about a positive change in the sector through competitive, private sector driven electricity market, with cost reflective pricing regime. To ensure that government’s objective is attained, the government must be fully conscious of the disposition of the private sector operators to relegate the interests of the consumers in the list of their priorities. In the same vein, the private operators are aware that the protection of consumers’ interests in a privatized power market is the primary responsibility of government and will exploit every means to thwart any effort in that direction.
Against the above background, it is safe to conclude, that while the new service based price increases may have come to stay to the admiration of the private sector operators, government will be failing in its responsibility to the citizens if it allows the DisCos to continue to ride roughshod over the consumers. The first action expected of the sector regulators, is to enforce without delay a ‘no meter no new connection’ policy and secondly to set and enforce a target date for ending estimated billing to compliment the recent Presidential directive for a nationwide mass metering of customers. Unless a target date is stated and strictly enforced, the presidential directive may just remain a statement of aspiration, which will never be attained rather than an objective. Is it not curious that the DisCos are not taking advantage of the MAP programme which has transferred the burden of purchasing meters to customers, to drastically increase metering? Estimated billing discourages DisCos from improving service quality and encourages them to bill consumers for darkness, while protecting them from the consequences of doing so.
It is noteworthy and sadly so, the role corruption could play in obstructing the realization of public institutions’ objectives. Prior to privatization, corruption was implicated to have been a major factor responsible for the failure of government’s effort to expand public power supply infrastructure and service quality through the defunct NEPA. Now that government’s role has been restricted to regulation, it is also noteworthy and cause for concern that avenues for corrupt practices that can derail the current effort still abounds. Corruption in the form of regulatory capture (a situation where the regulators act in favour of the organizations they are regulating to the disadvantage of the public who are supposed to benefit from such regulation) is the most potent form of corruption that can afflict government’s regulatory intervention in the current privatized power market. The country has so much mileage to cover in meeting her electricity supply needs for economic growth and development. Hence nothing should be allowed to stand in the way, not even the interests of the private sector operators or the interests of regulators in any form. To guarantee the success of the privatized power market in Nigeria going forward, government must emplace best practices that promote effective regulatory regime. Such best practices should be such that will compel the regulatory agency, Nigeria Electricity Regulatory Commission (NERC) to act in the interest of the citizens and the private power operators to be on their toes always.
Dr. U. Eke, is an Energy Economist and Management Consultant.
