10 June 2012

Nigeria: Fixing Power is Not Government Business

Mr. Abba Ibrahim is the Nigerian Electricity Regulatory Commission (NERC) Commissioner in charge of Government and Consumer Affairs. In this interview with CHIKA OKEKE, he sheds light on the new electricity tariff and why the government privatised the power sector.

What is the new tariff like?

The new electricity tariff in Nigeria is a well thought process by NERC in consultation with all the stakeholders namely: the government, industry, consumers as well as the investors. As you are aware, NERC has a dual mandate in ensuring that the industry is efficiently managed and the electricity consumers adequately protected.

We discussed the tariff with people because it's not something that is flung to the air. It came about through a very methodical process and because the principle of these tariffs is cost-reflective -by means of determining the actual revenue required based on sound economic models of an industry. For any industry to succeed and be sustained, you must have a very clear cost and sustainable revenue that will support that industry, so power is not isolated from that.

The government took it upon itself to provide electricity service since the days of ECN, NEPA and now PHCN. Clearly, as we have all witnessed in this country today, the government is not capable of delivering that power that everybody needs in Nigeria.

So that is what informed the policy of the federal government to privatise the power infrastructure that we have in Nigeria and in the privatisation process, you aim at attracting foreign direct investment for people with the kind of resources, technical manpower as well as financial resources to come and invest in the sector.

But knowing fully that anybody coming to invest will only come to ensure that his business is profitable; that is where the commission comes in to support the process of an investment, especially foreign investment and ensure that the investor does not put cost that will exploit the common man. We also ensure that all the cost is prudent, justifiable so as not to exploit the poor consumer who will pay the electricity tariff.

Nigeria is an economy with very rich people and very poor people and others in between that, so we are mindful of that in trying to design the tariff structure. We have convinced the Federal Government and has graciously accepted to cushion the effect of the tariff hike by providing subsidy on a temporary basis. It's very important that we know that it is a transition subsidy provided by the FG for the power sector.

For this year, N50billion is provided which is channeled mainly at reducing the tariff of rural dwellers and urban poor. They are categorised under the tariff structure R1 (residential 1) because most of these rural dwellers and urban poor, based on the existing data that we have, consume not more than 50 kilowatt/hour per month, so anybody consuming 50 kilowatt/hour or less per month is categorised as R1 and the person will enjoy the subsidy.

It is not only the subsidy from the federal government, but we have made it in such a way that the rich can also cross-subsidise this group of power consumers. The big industries will also cross-subsidise this consumers.

The new tariff for R1 is N4 per kilowatt/hour which was arrived at based on their social classification. They are not going to pay any fixed charge and we have also abolished PHCN practice of collecting meter maintenance fee. So if someone on R1 class is prudent in using electricity, the person will eventually pay less than what he's paying now as long as there are no such practice of leaving lights on in the middle of the afternoon when they don't need it.

Another is R2 where 80% of Nigerians fall under; that is residential category R2. In this category, they do not also pay the meter maintenance fee, they enjoy some subsidy but not the same with the R1 class.

The new tariff varies from location to location and since we have 11 distribution companies across the country, each distribution company has its cost profile. You don't expect the cost of doing business in Sokoto to be the same as Port Harcourt. We used a methodical process in determining the cost of each distribution company.

"The variation for the R2 class is not too much because currently in Nigeria, everybody pay N10 but with the new monthly tariff order, the R2 class pays N11 per kilowatt/hour and in some places, they can pay up to N14 per kilowatt/hour.

The higher class is R3 because some rich people have their own dedicated transformers but they are served under 11 KVA and they have a higher tariff. The highest in the residential category is R4 which is also served with at a dedicated transformer via the 33 KVA line.

What should they be expecting as their new tariff?

The residential R1 will not pay any fixed charges; the residential R2 pays N500 fixed charge, the residential R3 pays about N18, 000 while R4 pays between N100, 000 to N113, 000 per month, so it all varies and it's a fixed charge. The rural dweller and urban poor on R1 will not pay anything but the rich people are paying so that's where the element of cross-subsidy comes in.

The engine room for any business in the world is the small and medium scale enterprises such as the artisans; hairdressers, welders, barbers; all these small businesses are classified as commercial C1. They also have been subsidised and will pay a minimal fee of N500 as fixed charge and they will also enjoy the element of the cross-subsidy. We also have the larger commercials like the C2 and C3.

In the industrial classes, we have the D1, D2 and D3. The D1 are the light industries; they have some element of subsidy in the light industry. The heavier and bigger industries like the D2 and D3, have higher tariff and higher fixed charges.

The rationale behind this, is that the bigger industry are paying a lot more now for diesel generation and are very happy to pay for a stable and reliable service, so that's what we are trying to establish; so in the end, their cost might even come down in terms of energy and when it does, they will be able to expand, employ more people and the economy will be better for it.

We have special categories like S1, S2 and S3. Under this special category, we have places of worship like churches and mosques, schools, hospitals; those entire social services that we all benefit from as a community.

Finally, is the street light which is also beneficial to everybody but somebody has to pay for it. We have also a special tariff for the street light. Usually government pays for it but it's subsidised because it's a social service and it also enhances security in the neighborhood. We are also encouraging energy efficient street light because the technology is there now and there's no point using very expensive, high energy consuming fixtures when there are cheaper ones.

NGOs are kicking and even threatening to embark on strike if the new tariff regime is implemented. With the nationwide strike experienced during the fuel subsidy removal, don't you think that the electricity tariff will attract such?

The electricity tariff is quite different from the fuel subsidy issue, as I said earlier, we have even convinced the government to put in subsidy but we want to do it on a transition basis to cushion the effect of the tariff increase. We have worked with civil society organisations. We review the tariff every year and it can be reviewed to come down.

That's the beauty of the electricity tariff. I'm not saying that the tariff will come down but once the economic parameters have indicated the need to review downwards, I can assure you that we will sit down and review it downward. But there's a mechanism and process that you will consult and carry everybody along in a very transparent manner because transparency is a key to a good regulatory practice.

The bottom line is that we can't sit down and do nothing and not reviewing this tariff amounts to doing nothing and it can't lead us to anywhere. We must make some sacrifices for the generations ahead of us and not allow our own children to suffer. Fixing the power is not a government business and as we have seen, the government has failed to fix the power.

So you have to bring in the right kind of people who have the technical skills, expertise and the finances to do it. Although it's not our responsibility because Bureau for Public Enterprise is in charge of the transaction but we are monitoring closely to ensure that credible investors emerge.

Only when credible investors will emerge in the process, that's where things will equally go forward. So we are appealing to all Nigerians and media who are very important stakeholders to join us in this march.

Why can't the issue of epileptic power supply be addressed before increasing the electricity tariff?

This will drag us back to the past ten years. We have seen how a lot of money has been wasted by government and we don't want that to happen again so if you say that you want improvement; improvement comes at a cost and money must be spent.

This money belongs to all Nigerians and it had been wasted in the past. Can we endure it again to be wasted? That is the question. My view is certainly not, and we should never endure that because government has a lot of other competing demands already.

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