How not to regulate the electricity industry

Business News

In summary

∆ Electricity is one issue that affects every home, every family, and every business in Nigeria
∆ Nigerians are asking why the government is still fixing electricity prices, years after it privatized the sector?
∆ Manufacturers who are the heavy users of electricity, including Labour unions and the civil society, condemn and reject the new price policy until the electricity generation, transmission and distribution improve.


By Franklin Alli

I keep telling people we operate in Africa; we operate in Nigeria and things change overnight in our market. Here, you go to bed one night, knowing you have made some decisions only to find out in the morning that either the government has made an announcement that the exchange rate has gone up, or something is happening that is not normal in the business environment,” – Oyeyimika Adeboye, Cadbury MD.

The above statements by the MD of Cadbury Nigeria Plc, aptly fit the recently slammed new electricity tariff regime foisted by the government on the business community and household in the country, all in a bid for revenues generating.
However, in some countries, the government would not do a thing without first, consult the citizens, “ this is what we want to do, and why “.
And after the consultation, a period is allowed to create awareness about the new policy before it takes effect.
Of course, this is usually communicated through radio jingles, billboards, newspaper advertisements, but not here in Nigeria.
This is why on December 30, 2020, the Nigerian Electricity Regulatory Commission (NERC), without consultation with electricity consumers, announced an adjustment in the pricing of the commodity from N2.00 to N4.00 per kilowatt per hour of electricity, effective January 1, 2021.
In the revised Multi-Year Tariff Order (MYTO) for January to June 2021 signed by the new Chairman of NERC, Eng. Sanusi Garba said that the increase was necessary following changes in the inflation rate, foreign exchange rate, available generation, gas price, collection losses from ministries, departments and agencies of government, and capital expenditure (CAPEX) adjustments.
He said that the tariff for customers on service Bands D & E (customers being served less than an average of 12 hours of supply per day over one month remains frozen and subsidized in line with the policy direction of the Federal Government.

“This is a normal regulatory process of ensuring that electricity rates are aligned with changes in macro-economic parameters,” he said.

Although the commission said that the hike from N2 to N4, is 10 percent and not 50 percent, a letter it sent to one of the electricity distribution companies indicated that a segment of consumers has been slammed with an N121.5 percent increase.

Using the case of Ibadan Disco, NERC’s letter shows that Band A (minimum supply of 20hrs daily) will increase by N6.85 to N69.18/kwh, indicating a 10.98 percent raise.

Also, the tariff for customers in Band B (minimum supply of 16 hours daily) will increase by 13.1 percent (N7.65) to N66.04/kwh from the present N58.9/kwh. For customers in Band C (minimum supply of 12hrs daily), the increase is 29.13 percent (N14.19) to N62.92/kwh).

The highest tariff increase will be for consumers in Band D (minimum supply of 8hrs daily) with a 121.5 percent (N32.79) hike to N55.76/kWh from N26.97/kwh.
Here’s how stakeholders under different umbrella bodies the like of Manufacturers Association of Nigeria (MAN), the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, NACCIMA; Nigeria Labour Congress, Trade Union Congress; and the Electricity Consumers Association of Nigeria, ECAN, as well as some civil society organizations, have reacted to the development:
Industries with higher energy use will be worst off – MAN 
Segun Ajayi – Kadir, the Director-General of Manufacturers Association of Nigeria, said: ”We are worried that the recent increase in the price of electricity will have an overwhelmingly negative impact on the Nigerian economy, especially the manufacturing sector.
He notes that the Association represents the interests of over 3,000 manufacturers (small; medium; large and multinational industries) spread across 10 sectors, 76 sub-sectors, and 16 industrial zones.
“ Manufacturers are heavy users of electricity in Nigeria and this necessitated the Association’s keen interest in all electricity-related discourse and development, particularly electricity supply and tariff. The manufacturing sector employs over 5 million workers, directly and indirectly with an 8.93% contribution to Gross Domestic Product.
“The increase will trigger reverse-multiplier effect as cost of production escalates and the headways already made in the sector is eroded.
“This is because most MAN-member companies are classified in the ‘D’ categorization (D1, D2, and D3) where the tariff is the highest.
“ Manufacturing sub-sectoral groups with higher energy consumption which include Basic Metal, Iron and Steel and Fabricated Metal Products; Domestic & Industrial, Rubber and Foam; Non-Metallic Mineral Product; and Chemical & Pharmaceuticals sectoral groups would be worse-off,” he said.
His counterpart, Amb. Ayo Olukanni, Director-General, NACCIMA, corroborated that the tariff increase, though not unexpected based on the Multi-Year Tariff Order (MYTO), will further impede the growth of the real sector – manufacturing, agriculture, and solid mineral.

Olukanni stated: “The increase does not come as a surprise as NERC is implementing to the letter the directives of the Electric Power Sector Reform Act 2005, through the Multi-Year Tariff Order (MYTO) by Section 9 of the “Regulation on Procedures for Electricity Tariff Reviews in the Nigerian Electricity Supply Industry,” which provides a tariff path for the electricity industry, with bi-annual minor reviews to take into account the impact of changes in a limited number of parameters (specifically inflation, dollar exchange rate to naira, natural gas price and available generation capacity).

“All said and done in the current reality of COVID-19 and its impact on the Nigerian economy, currently manifesting as economic recession, a continuous increase in the cost of production (which would be the result of these periodical increases) will impede the growth of the real sector. Business concerns will attempt to pass on some of these costs to consumers by increasing their prices, demand will drop, and the vicious cycle will continue.

“Our counsel to government remains the implementation of policies (even if it is in the short term) that increase the productive capacity of the real sector, as well as the disposable income of the general populace,” he said.

The President of Nigeria Labour Congress, NLC, Ayuba Wabba, expressed shock over the increment, and vowed that organized labor will resist the hike, and urged Nigerians to stand up against it.
He said: “This is not only condemnable, but there is an element of deceit in it because there is a standing committee of the Federal Government which the NERC, is part of, still working on how to address the issue arising from the last electricity tariff hike which Labour intervened.

“Most of the committee members are not even aware of this current increase. We are going to resist it and Nigerians must also stand up to resist it. It is like exploitation and it means that this exploitation will not have an end. When you look at the variables, it is even laughable.
“ You are looking at the variable of inflation and the variable of the exchange rate which are supposed to be the responsibility of government to fix. The government ought to fix our economy and bring the exchange rate to the lowest level, same with inflation. The government is transferring its inefficiency to the consumers which the accompanying inflation will be very severe.

“I am sure that most of our manufacturers, both small and medium scale will not be able to afford all these. They have been crying and the implication is also that there will be some layoffs because people will now resort to importation, most of those companies, small and medium will resort to importation instead of producing here at home.
It will also affect their (government) diversification policy. Certainly, it will further impoverish Nigerians especially workers. Currently, we are under the yoke of paying excessive charges overall services, and on this important commodity, is the worse off.

It’s unfortunate’

“It is really unfortunate also because, in many climes, governments are subsidizing power because of the impact of Covid-19 on businesses, on health and the world of work. Including African countries, we have statistics of countries that have assisted to ensure that electricity tariff is suspended for some time. There have not been increases. Unfortunately, we have not looked at all of these.
The implication is that there will be consequences if this increase is not challenged. Very soon, Organised Labour will meet to look at the issue and respond appropriately.

That I can assure you because it has bastardized the very work of this important committee that we thought social dialogue would be able to bring a solution to this issue. It is one issue that affects every family, every home, and every business. It is a very sensitive issue that the government ought to be very sensitive to.

“ There are many companies that have either closed shop or relocated to neighboring countries because they cannot afford to pay the last tariff hike, yet this government has done another one.”

“I have said time without number that NERC is conniving with the service providers instead of siding with customers. Even the very important laws that are put in place to guide against such arbitrary increases have not been respected.

For instance, the customers’ forum which I remember was held in Kano State, where all of us rejected particularly the last increase because it has no basis.

The increase certainly has no basis. Part of the works the committee is doing is to look at the price of gas to the generating firms to be able to bring down even the current price before this increase. So, it has also basically bastardized the process of social dialogue.

On his part, Deputy President of NLC, and General Secretary of the National Union of Electricity Employees, NUEE, as well as a member of the Federal Government Standing Committee on Tariff, Joe Ajaero, who was taken aback by the increase, simply said “It is not possible.”

Another betrayal of trust — TUC

The Trade Union Congress of Nigeria, TUC, expressed disappointment over the latest hike in electricity tariff, describing the hike as a betrayal of trust.

TUC, in a statement by its President and Secretary-General, Quadri Olaleye, and Musa-Lawal Ozigi, respectively, said: “We are disappointed by the recent hike in electricity tariff done by the Federal Government while negotiations are ongoing with Organised Labour on the last hike because of the untold hardship it has brought on workers and Nigerians as a whole.

“Sometimes, we wonder why this government espouses unfriendly policies that are capable of crippling the economy. Many companies have either closed shop or relocated to neighboring countries because they cannot afford to pay the last tariff hike, yet this government has done another one.

Does it mean there is no other way this government can creatively generate revenue?
It has become obvious that the outrages from the Organised Labour, the masses, and the series of negotiations we had with the government were just cosmetic and hypocritical.

“There is so much deceit and laziness in the system. There is hardly any promise made that they have followed through.
“We have been labeled what we are not because we want a peaceful industrial atmosphere. The economy was struggling before the outbreak of the pandemic and we thought it was wise not to worsen our situation.
The sacrifice means nothing to these people, who forced us to tighten our belts while they loosen theirs. Darkness enhances criminal activities and now they have chosen to keep us in the darkness thinking their high fences will save them.”
Furthermore, the President of the Electricity Consumers Association of Nigeria, ECAN, Chijoke James, described the increase, as “insensitive”
“ So far, the improvement in services promised by the government during the tariff increase last year has not happened.

“There are no disposable incomes for people to spend combined with galloping inflation. I think it will be insensitive on the part of the government to allow for that kind of increase in this period,” he said.

Also, the President of Network for Energy Reform (Nigeria), Mr. Kunle Olubiyo, said there was a big misalignment of governance in the power sector and the policy direction of government.
What we are saying is that the hike in tariff last September sparked a nationwide uproar, prompting the setting up of a committee to review the hike. The committee is yet to conclude its work before another hike was slammed on January 1.

Olubiyo accused the government of hiding behind the price of gas to increase tariff, noting that as a gas-producing country, the cost was far below what the government was disclosing.

Need for strategic approach — LCCI

Commenting on the development, Director-General, Lagos Chamber of Commerce and Industry, LCCI, Dr. Muda Yusuf, said there should be a strategic approach to electricity pricing to avoid pushback from the consumers, noting that there was a review, just two months ago.

He said: “The commercial arguments may be strong, but there is a social context to be reckoned with, especially given the kind of product in question. It is also important to reckon with the economic and political ramifications of such price reviews.
We need to worry about the sensibilities of the people. Let me reiterate that we are in support of a cost-reflective tariff for electricity. But the transition to the new pricing regime should be strategic and gradual to minimize shocks and risks of push-backs by the consumers.

“Context matters in policy conceptualization and implementation. We need to worry about social and economic contexts. The economy is currently in a recession, purchasing power has been significantly eroded across all income classes, the poverty situation has been worsening, and there is spiraling inflation.
There are fresh concerns about the resurgence of the COVID-19 pandemic. These contexts should have a moderating effect on price movement at this time, especially for a product of high social significance. It is important to take these factors into account in order not to put the entire reform process at risk.”

Wrong timing — CISLAC

Civil Society Legislative Advocacy Centre, CISLAC, through its Executive Director, Awual Rafsanjani, said: “It is a wrong time when Nigerians are battling with so many challenges of survival in Nigeria.
The Federal Government has a lot of areas where they could block leakages, stop corruption, and generate more revenue in Nigeria. This increase is not a welcome development but an additional burden on Nigerians, and the government should reconsider it.

“So rather than over-taxing ordinary people buy this increase while it’s obvious that there is no much to Nigerians’ income is a rather misplaced priority of raising government revenue.
The second fundamental issue is that the government has already privatized electricity, so we don’t understand the rationale by the Federal Government for increasing this when they have already privatized it. It means the privatization that took place on electricity is not real privatization because if you privatize, the Federal Government should not have a hand in fixing or increasing the tariff.

“They can regulate and make sure suppliers supply sufficient electricity but we need to understand the involvement of this one now.
The third thing is that Nigerians continue to pay for all these but they don’t get the expected power supply. So I think the government should begin to think and work for the interest of Nigerians. Nigerians are going through a lot of challenges on how to survive and coming to do this increase now is rather going to add another burden. But it’s up to Nigerians to show their concern over this because some few of us have been canvassing and agitating for the betterment of Nigerians for improved governance but some people don’t seem to know that some people are giving their lives, coming and sacrificing on behalf of all of us.”

 

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