8 May 2017

Nigeria: Power Sector Recovery Plan - Electricity Tariff May Rise in July

Photo: Chris Kirchhoff/MCSA
Beaufort West, Western Cape province: Electricity pylons.

Electricity tariff may rise in July as the Federal Government considers options to revive the ailing power sector by injecting $7.6 billion (about N2.4 trillion) in five years.

The details are contained in the Power Sector Recovery Plan (PSRP), a document formulated in March by the Office of the Vice President and the World Bank Group (WBG). The Working Group for the implementation is being coordinated by the SSA to the President on Power at the Office of the VP, Damilola Ogunbiyi, and the Lead Energy Specialist at WBG, Kyran O'Sullivan.

The federal government considers recovering the $7.6bn fund by way of hiking the present electricity tariff outlined in the Multi Year Tariff Order (MYTO) 2015. It has considered four options and the Working Group is making a decision on which of the hike options to adopt shortly, the Daily Trust learnt.

The first tariff hike option is to freeze tariffs for all classes of electricity customers until July 2019. Although the present administration may have left office then, government still believes this decision will help it recover the N2.4trn ($7.6bn) it is sinking into the sector from now to 2021.

Option B of the PSRP is to hike tariffs for all classes of customers by January 2018. This it said will fetch about N1.7trn (about $5.4bn) of the fund to be spent in the 5-year period. However, a balance of $2.2bn (N697.4bn) may not be recovered within the period.

The third tariff hike option which is the most urgent is to increase tariffs in July 2017 (two months from now). This decision if taken will fetch the federal government about N1.3tr ($4.1bn) to support the sector in the 5year period. Government may still have to contend with recovering $3.5bn (N1.1trn) balance.

The fourth option is to hike tariffs by 50 per cent in July 2017 for industrial customers only. The non-vulnerable residential and low commercial customers will see the hike by January 2018 while the vulnerable ones (customers in the lowest class) will see a hike by July 2019. Government believes taking the decision could raise N2.3tr ($5.9bn), leaving a balance of $1.7bn (N538.9bn).

The PSRP team's survey tests these options to determine the support from the public and the political backings. The research shows that Option 3 of hiking tariff in the next two months to generate N1.3tr will have zero political and public support, but with high support from the $7.6bn intervention funders (mostly AfDB and WBG).

Option 1 to generate N2.4tr will have medium political and public support, with low support from the funders.

Option 2 which will fetch N1.7trn FG support will have low support from politicians and public and a medium from the funders; Option 4 (N1.9tr) tariff increase for industrial customers only will have medium political support and high support from the public and the funders (lenders).

Government traced causes of the present liquidity crisis in the sector to consumers' apathy to pay bills in post privatisation, poor regulatory compliance, foreign exchange fluctuations, vandalism among others.

It said the result was epileptic power supply that causes the Nigerian economy to lose $29.3bn (N9.2trn) annually. The factors have also caused an electricity market shortfall of N470bn and a tariff shortfall of N458bn between 2015 and 2016.

Government which still has a 40 per cent stake in the power sector utilities privatised on November 1, 2013, plans to spend $1.5bn (N475.5bn) annually from 2017 to 2021, estimated at $7.6bn in five years.

To source this fund, the exclusive report shows that there will be budget allocation of $3.50bn (N1.1trn), the sales of 10 plants under the National Integrated Power Projects (NIPPs) for $2.1bn (N665.7bn); sourcing loans of $1bn (N317bn) each from the African Development Bank (AfDB) and the World Bank during the period.

The Daily Trust analysis reveals that on the statutory budget, about $700 million (N221.9bn) must be allocated annually till 2021 to meet this specific target. The 2017 budget proposal presently before the National Assembly has N564bn allocation for the power sector which is N343bn higher than the annual benchmark, if specifically directed to the recovery targets.

Experts differ on implementation, tariff hike

In his views, Mr. Emeka Okupara of Nextier Power, a power sector advisory firm in Abuja told our reporter that there should be an independent body to implement the PSRP. He said, "I believe there needs to be an independent and competent body that have the authority to be able to sanction any group that is not conforming."

For the tariff hike plans, Okupara said such immediate attempt will receive a huge kickback from the public. "Increasing the tariff may not change anything if the collection deficiency is not addressed. The Distribution Company (DisCos) would need to do a better job on their collections before you talk increase.

Electricity sector advocate and analyst, Mr Kunle Olubiyo said before the injection of funds, the sector must take three immediate approaches: "Escrow the account of the operators for three months for a midterm forensic audit to determine the Inflow and outflow to know what should be supported from experts' review of the Aggregate Technical, Collection and Commercial (ATC & C) losses," he advised.

From her perspective, Mrs Joy Ogaji, a former official of the Presidential Taskforce on Power (PTFP), a public sector monitor said there was need to first get the market to the point of bankability and commercial sustainability.

She said, "Without the private sector, government finances are not sufficient to maintain the grid given other socio-economic needs yet alone to grow and expand it."

On the PSRP implementation, she said it must have been thought out by the Coordinating Team adding that, "There may be no vacancy at Aso-Rock but ministers, DGs, and CEOs do come and go. An independent body would provide continuity and focus."

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