First Six Months of Privatised Electricity

(By Ohimor)

The importance of electricity to our economic aspiration cannot be over-emphasised. Its limited or non-availability has been largely responsible for the state of our economy and arguably the comatose state of certain industries – chief examples being the automobile assembly and other heavy industries.

THE period from November 2013 to April 2014 marked the first six months of Nigeria’s foray into a privatised electricity supply industry. Few will argue against the fact that the period is far too short as basis to assess the performance of the industry or its key players. However, a number of events and developments within this time frame can be used to assess whether or not we are on the right path.

  It is of great interest that on the very last day of the six month period the industry regulator – Nigerian Electricity Regulatory Commission (NERC) made an order in respect of fixed charge which in recent times has become a sore point for electricity consumers nationwide. I hope to return and discuss the content of the order later in the article.

   The foremost development of the last half year, in the electricity industry was the drastic fall in electricity supply which going by commentaries in the media, tend to raise doubts as to whether the privatisation programme will deliver on its promise. Not unexpectedly, critics of the government found fertile grounds to score the present administration low. In response, government functionaries blamed the shortage of gas occasioned by vandalised pipelines as the cause of the fall in power supply. In another breath, industry watchers saw the actions of saboteurs and disgruntled elements and beneficiaries of the old regime as being responsible. At the end of the day, one party suffered it all – the consumer.

  Regardless of the plausible excuses and blame game, six months is far too short a period to determine whether the new owners of our privatised assets are competent enough to meet our electricity supply expectation, particularly when viewed against the decades of neglect and maladministration the industry had suffered under government ownership. Also while new owners are in charge, the key operatives are staff inherited from the successor companies of PHCN, who are very much in need of re-orientation.

   Another interesting development is the consumer complaint if not outrage against the fixed charge element in electricity bills. The loud and unending complaints seem to suggest that fixed charge came with the arrival of the new owners, whereas it has been in place as far back as 2011 with respect to the current Multi Year Tariff Order (MYTO 2). The fixed charge issue was merely accentuated by the drastic fall in electricity supply coming at a time when expectation for improved services became heightened following the takeover by the new private owners. Consumers could not bring themselves to pay for deteriorating service following the realisation that the profit from electricity supply now goes to some private pockets as against government purse under the old regime.

   The outcry against the fixed charge confirms that the average consumer of electricity is now more aware and interested about issues concerning this vital industry and willing to speak up. The role of the electricity workers’ unions must be acknowledged, in trying to win sympathy for settlement of their benefits they have through protests and threats of strikes increased our collective consciousness about happenings in the sector.

  The above developments among others and the responses of key players including NERC underscore the seminal nature of the Nigerian privatised electric power sector. Truth be told, all players both the new owners and the regulator are all “newbies” as far as a privatised electricity industry is concerned. As a society, we have a steep learning curve ahead, and the willingness and readiness of all stakeholders to play their roles will be vital to the success or failure of privatised electricity industry.

  From consumers’ active participation in consumer forums and exploring complaints and feedback mechanisms; to a consumer centric and responsive attitude by the DISCOs who largely are the face of the industry; to a regulator that is activist in nature and responsive to the industry’s dynamic needs. Not least is the government’s role in moving against saboteurs and their collaborators and continued provision of enabling and supportive environment for private capital and entrepreneurship to thrive in the industry.

  NERC’s order of April 30, 2014, in respect of fixed charge is commendable to the extent that at least consumers’ complaints are not ignored. It is in my opinion that NERC may just be a model electricity regulator that can midwife the electricity supply industry we long for.   However, the order comes short of expectation and is a measure that will not deliver much. It can in fact throw up more issues and challenges as implementation and enforcement would be cumbersome. The order which is effective May 1, 2014, states that consumers which suffer up to 15 days of blackouts either at a stretch or cumulatively within a month should not pay the fixed charge.

   NERC by the order at least recognises the injustice in consumers paying a fixed charge when electricity is not supplied. The injustice is more painful when consumers sometimes go without electricity for weeks, cases abound where faulty transformers are removed by DISCOs and are not replaced soon enough. There is need for NERC to send clear signal to the DISCOs, that it is no longer business as usual as we cannot afford the highhandedness and insensitivity that characterised the defunct monopoly – PHCN.

  Though NERC made plausible explanation for the fixed charge which indeed is a feature for electricity industry globally, the peculiar scenario of our electricity industry here in Nigeria does not fully fit the picture in other markets. Our current generation and supply situation is abysmally poor; the losses, pain and suffering inflicted on consumers cannot justify a high fixed charge. While the present situation is due entirely to government neglect and failings in the past, the new industry players themselves (mainly DISCOs) are yet to make necessary investments that will improve on service quality. When investors have made needed investments and minimum acceptable quality of service is assured, fixed charge cannot be contested.

   The fixed charge for majority of residential and commercial consumers currently stands at N750 per month and is due to increase to as much as N1,500 by June 2014 and N1,800 by June 2015 for some DISCOs as per the MYTO in force. Even with significant improvement in electricity supply between now and June 2015, the increases which are automatic except NERC makes an order adjusting the rate, will be a hard sell and indeed a high price to pay considering incomes levels in the economy.

   The importance of electricity to our economic aspiration cannot be over-emphasised. Its limited or non-availability has been largely responsible for the state of our economy and arguably the comatose state of certain industries – chief examples being the automobile assembly and other heavy industries.

   I believe an urgent and in-depth review of the fixed charge as provided for in MYTO2 has become necessary. The options for consideration include a downward review of the fixed charge rate particularly for residential consumers or a freezing at the current rate of N750 for the remaining term of MYTO2. This will allow the GENCOs and DISCOs improve on generation and supply, following which, the current or higher fixed charge will become acceptable to consumers. Failure to review the fixed charge rate and more importantly demand improvements in service levels from both GENCOs and DISCOs will only breed discontent among consumers and above all entrench the fear that NERC is out to protect the new private investors to the detriment of consumers.

    NERC by the latest order has showed signs of a listening regulator, it should go further to communicate unequivocally to the new players that the old order under the defunct PHCN cannot continue. Arbitrary charges and so called estimated billing by which consumers were fleeced in the past should not continue a month longer. There is need for an urgent plan and indeed marching orders on prepaid meters.    This will ensure correct and accurate billing and fairness to both consumers and suppliers. Furthermore, the DISCOs will have a fair view of their actual revenues and avoid distortions associated with estimated bills.

   Doubtless, consideration needs to be given to the new private investors in the sector, whose economic projections would have been based on the provisions, estimates and rates in MYTO2. It would not be out of place for the government to consider some form of compensation to cushion the impact of the loss of income to the industry due to a downward review of the fixed charge. Any compensation whatsoever must be tied to the industry meeting key performance indicators particularly improved supply.

  The first six months of a privatised electricity industry has come and gone, while it is a relatively short time, it nonetheless provides all stakeholders valuable signposts as to the journey ahead and most importantly gives the regulator ample room for a head start as success or failure of the entire venture rises and falls on efficient and effective regulation or the lack of same.

Ohimor is finance consultant.

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