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We Are Addressing Power Sector Challenges Beyond Tariff

The Commission’s attention has been drawn to an editorial in one of the dailies today and wish to state that the Commission as the sector regulator on power pursuant to the Electric Power Sector Reform EPSR Act 2005 is tasked with the responsibility of providing fair regulation to all stakeholders, including electricity consumers and operators as contained in Section 32&36 of the EPSR ACT 2005.

Specifically, the Commission is by the law under the EPSR ACT to provide a cost reflective tariff for the operators based on prudent costs and create an enabling environment, while at the same time protect the interest of electricity customers to ensure they get value for money. The Commission has never at any time stated that only an increase in electricity tariff would guarantee steady power supply in the Country. NERC’s position remain that in view of the economic recession in Nigeria and poor remittance level by electricity distribution companies (DISCO’s) multiple restraining orders from the courts as a result of litigations by some DISCOS that constrains the Commission, and the Nigerian Bulk Electricity Trading Company from enforcing the Market Rules on Discos and other market operators amongst others, increase in tariff is not imminent at this time.

The Commission is working with the Ministry of Power, Works and Housing and other stakeholders to implement innovative ways to address the liquidity gap and other issues militating against improved electricity supply through both regulatory and policy interventions not excluding the appropriate intervention of the Federal Government as was executed in other jurisdictions that have implemented similar power reform programme.

The Commission in recognition of the importance of protecting the interest of electricity customers has rapidly set up 19 Customer Complaints Forum Offices nationwide with over 10 more in the pipeline to be opened this year. The monitoring and enforcement actions have been intensified by the Commission to ensure that the electricity industry operators, especially the DISCO’s comply with the rulings of the NERC Forum Offices and other regulations. A lot of the defaulting DISCOs, including the TCN, some GENCOs have been sanctioned by the Commission. Most of these defaulters have either fully paid the fines or applied for reconsideration. These regulatory oversights of the Commission have tremendously increased the rate of voluntary compliance by the electricity industry operators, especially on issues bordering on customer complaints.

There is no doubt that the electricity sector has not achieved the projected level of improvement due to various reasons that are attributable to the operators deficiencies and beyond. These challenges are not peculiar to only Nigeria, but also did occurred within 3 to 5 years in similar forms in all other countries that undertook similar power sector reform.

The Nigerian Electricity Regulatory Commission is saddled with the responsibility of protecting the interest of both consumers and well as investors when it comes to the issue of electricity pricing as well as electricity supply in Nigeria. The allegation that the Commission is siding with the operators is simply untrue.

As Nigerians are fully aware, the macroeconomic indices such as the rate of inflation and exchange rate have steadily gone up over the last one year. This increase has affected the prices of all other commodities in the country. The purchasing power of Naira has crashed to all time low within the last couple of months. The MYTO methodology (pricing methodology) mandates the Commission to carry out a minor review of the Tariff bi-annually and adjust these exogenous factors that are beyond the control of the investors and the regulators. The official exchange rate in the country has risen from N198.97 to over N305.05 to a dollar. Kindly note that the unofficial (black market) exchange rate is about N500 to a USD. This alone is bound to trigger an increase in electricity tariff given the fact that all equipment, spare parts, meters used for the generation, transmission and distribution of electricity in Nigeria are imported. Electricity is therefore a product like any other product that is affected by changes in micro economic indices.

Secondly, the rate of inflation has risen to 18.55% as at 1st February 2017 as against the 8.3% used in the tariff computation. Similarly the available electricity generation has dropped from the projected 7,199MW in 2017 to under 4,000MW. The drop in power generation is due to vandalism of key facilities as rightly pointed out by the Honourable Minister of Power and this has created volumetric risk in the Nigerian Electricity Supply Industry (NESI). The Commission is not oblivious of the economic hardship faced by Nigerians as we are also suffering the same fate with our fellow countrymen. We pay the same electricity tariff like every other Nigerian but we also have a duty of ensuring that the operators recover their prudently incurred cost thus the need for the tariff review at an appropriate time and manner with the aim of ensuring that the electricity market remains operational.

It is also a known fact that over 80% of the electricity generated in Nigeria is from gas fired power plant. The gas price is indexed to the US$ as the generators pay the gas suppliers in Dollars ($). The Commission has proposed to the government the option of pricing gas in local currency to mitigate the foreign exchange risk which is the major cause for the gap in tariff.

The Commission remains committed to provide an enabling environment for the operators in the sectors and also protect the interest of the electricity customers.

The Commission wishes to assure the general public and investors that these problems in the power sector are transitory and there is a comprehensive and robust proposal developed by a joint committee piloted by the Hon. Minister of power with the participation of NERC and other stakeholders to effectively resolve these teething problems in the NESI.


Dr. Usman Abba Arabi - Head, Public Affairs Department
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