Electricity tariff hike or improved supply: which should come first?

By Dr Ayodele Oni

Tariffs flow from you and I (consumers) to electricity distribution companies, which then pay everyone else on the value chain – the Nigerian Bulk Electricity Trading Plc, the Transmission Company of Nigeria, generation companies and gas producers (albeit indirectly).

For tariff increases to make sense at all, everyone must be billed for actual electricity consumed and not estimated billing. The Nigerian Electricity Regulatory Commission had tried to cap estimated billing. The issue is that Discos may completely stop supplying a community and yet bill that minimum.

Hence, whilst making it a policy and having NERC implement same, metering is very crucial and is an obligation of Discos must fulfil, and very quickly too. Although, the query usually is whether this obligation should be enforced in light of non-cost reflective tariff?

That is, ahead of increasing tariffs or making them cost-reflective. Nonetheless, whatever decision is considered optimal needs to happen about the same time as fairness, justice and equity are important whilst Discos seek to make profit from the business they have invested in.

Another issue which metering ties into is the obligation to reduce the Aggregate Technical, Commercial and Collection losses. This was a key bid criterion for the sale of the Discos to the core investors who had agreed to reduce ATC&C losses at different percentage levels over a period of five years or so.

Reducing those losses involves investing in technology, infrastructure and human capital with checks and balances. Whilst investment in technology and infrastructure/ equipment can reduce technical losses, more is needed, especially in connection with commercial and collection losses. Human capital training, orientation and checks and balances are particularly crucial as many a times, these Disco workers cut deals (not favourable to Discos) with consumers.

Now the question is whether the current tariffs are sufficient to ‘carry’ such investments and whether anyone would be willing to lend a Disco money on that basis of current tariff levels (to be honest, my friends at NERC have been doing a great job around tariffing, recently)!?

The answer appears to be an obvious ‘no’. Hence, the insistence on improved tariffs whilst also ensuring that Discos meet their metering obligation very quickly. A lot is being done by the government, regarding the transmission network and gas.

The government has also set up a power working group focused on taking practical steps to resolving many of the challenges in the sector. That said, the key thing for the average Nigerian is to have electricity regularly at a reasonable cost!

  • Oni is a commercial and international energy lawyer based in Lagos

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