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Tension Mounts As Labour And Discos Lock Horns Over Electricity Tariff Surge
Eko Hot Blog reports that The Nigeria Labour Congress, power distribution companies, and the Nigerian Electricity Regulatory Commission are heading for a collision course over the planned hike in the tariffs payable by electricity consumers nationwide.
Although power distribution companies and the NERC have not officially confirmed the planned increase, the Multi-Year Tariff Order of the regulator, which explains tariff reviews in the sector indicates that electricity tariff is meant to be reviewed every six months.
This implies that the tariff being paid by power users currently, will be reviewed and a new tariff will take effect from July 1, 2023.
In reviewing the tariff, based on MYTO, the NERC considers various economic factors. They include inflation rate, foreign exchange rate, available power generation capacity, gas price, and, capital expenditure adjustment.
Operators project that the high rate of inflation, coupled with the recent floating of the naira against the dollar, among other factors, will lead to an estimated rise of about 40 per cent in electricity tariff by July 1, 2023, should the MYTO be implemented.
Reacting to this, the NLC, on Thursday said the plan to increase electricity tariff by 40 per cent by July 1 “was both insensitive and callous and reflects an organised indifference to the wellbeing of consumers, especially, the poor ones.”
NLC kicks
The NLC President, Joe Ajaero, stated that the massive increase was explained away as a response to the over 100 per cent increase in the pump price of Premium Motor Spirit, popularly called petrol.
“Details reveal a movement in inflation from 16.9 per cent to 22.41 per cent (threatening to needle at 30 per cent), and a shift in the exchange rate from N441 to N750 (per dollar).
“We believe that not even these figures are a justification for this reckless proposed tariff increase. The issue of capacity to pay and quality of service delivery is not only germane but superior to any rationalisation by market logic,” Ajaero stated in a statement from the labour union.
He also pointed out that the service providers in the power sector were performing far below expectations, and accused power distributors of hiking tariffs surreptitiously.
He added, “The service providers in spite of sundry support have not been able to meet the threshold of 5,000 megawatts. Coupled with this, there have been surreptitious increases without notice in violation of statutes.
“The inherent risk in the new regime of tariff is that there is no control, implying that by August, consumers will pay new rates. The other risk is that by the time other products or service-rendering entities come up with their new prices or rates, the ordinary person would have been compacted into dust.
“We would want to advise the apostles of the market who have called the NLC all sorts of names to check their conscience. The rate at which they are going is highly combative and combustible,” Ajaero stated.
He noted that with contemplation of payment of school fees in tertiary institutions and increases in privately-owned ones, in addition to other costs and tariffs on the way, “life in Nigeria could truly be Hobbesian.”
He said, “The market economies which the market fundamentalists seek to emulate, have in place socio-economic safeguards which we do not have. In light of this, our advice is that this proposed tariff hike should be shelved for our collective safety.”
NERC’s tariff adjustments
The NERC is responsible for regulating electricity tariffs in Nigeria, as it periodically reviews and adjusts this based on various factors such as inflation, exchange rates, gas prices, and the cost of operating the power sector.
It introduced the Multi-Year Tariff Order, which is aimed at ensuring cost-reflective tariffs in the Nigerian electricity market. Under the MYTO, electricity tariffs are scheduled to increase gradually over time to cover the actual cost of generating and distributing electricity.
The commission, for instance in its MYTO 2022, explained that in line with the subsisting MYTO methodology, some indices with potential impact on electricity rates were considered, adding that these indices would be reviewed every six months.
“These indices shall be reviewed every six months to update the tariffs with changes in the indices as applicable in line with the MYTO methodology,” the regulator stated in MYTO documents issued to Discos.
The indices identified in the MYTO 2022 document include Nigeria’s inflation rate, foreign exchange rate, the United States’ rate of inflation, available generation capacity, gas price, CAPEX (capital expenditure) adjustment, as well as other changes.
However, the MYTO methodology met with mixed reactions from Nigerians. While some argued that it was necessary to improve the financial viability of the power sector and attract investments, others expressed concerns about the impact of tariff hikes on consumers, particularly in terms of affordability.
It must be noted, however, that electricity distribution companies play a role in the implementation of electricity tariffs. They are responsible for billing customers and collecting payments for electricity consumed. The Discos also bear the brunt of customers’ reactions when tariff adjustments are made.
The Executive Director, Research and Advocacy of the Association of Nigerian Electricity Distributors, Sunday Oduntan, told our correspondent that Discos would only act based on instruction from NERC.
Oduntan, who initially insisted on not commenting on the matter, refused to confirm whether Discos had been given the go-ahead to hike the power tariff beginning from July 1, 2023.
“The people to be called on tariff are those in NERC, not us. I cannot explain to Nigerians because I am not the regulator. It is the regulator that determines tariffs by looking at the indices of the economy, not us.
“We also wait on them. Anything to do with tariffs is determined by the regulator and not the operators,” he stated.
When asked whether the NERC had given the Discos the approval to raise the tariffs, Oduntan replied, “When they tell us to do this, then we follow that instruction.”
NUEE opposes hike
But the acting General Secretary of the National Union of Electricity Employees, Dominic Igwebuike, said any move by Discos or the NERC to hike tariffs would be resisted by electricity workers.
He stated, “We are just yelling over the more than 100 per cent increase in petrol price, now they are talking about a 40 per cent increase in electricity tariffs. Can you imagine that? And this is about the sixth time they are increasing it since the sector was privatised.
“The NUEE condemns it in totality. It is unacceptable and it shows that the government does not care about the feelings of the poor masses. They are not talking about increasing generation capacity but raising tariffs. It is very sad,” he said.
Speaking on what the union would do if the Discos should implement the proposed hike, Igwebuike said, “We want to see what will happen. If it comes to that, we are going to know what to do. We are going to consult ourselves to see the next line of action if that is done.”
The NERC, however, did not comment on the issue, as its spokesperson, Usman Arabi, said he was out of the country, while other officials at the commission refused to speak on the matter when contacted.
But the Chairman of the Lagos State chapter of the Nigerian Association of Small and Medium Enterprises, Solomon Aderoju, in an interview with The PUNCH, said any increase in electricity tariff would spike production costs and consequently exacerbate the plight of the MSMEs.
He said, “It is going to cause problems in the MSME environment because it is going to increase the cost of production. We are facing very tough times now because of what is happening with petrol and diesel.
“Even the exchange rate is gargantuan now. This electricity tariff hike is going to lead to an increase in the cost of production and already, our cost of production is too much to bear. Unfortunately, the cost of borrowing is also high. The MPR (monetary policy rate ) is now 18.5 per cent. No MSME can thrive under these circumstances. The rate of inflation is 22.41 as of today. MSMEs are facing very turbulent times now.
On his part, the Deputy-President of the Lagos Chamber of Commerce and Industry, Gabriel Idahosa, rejected the proposed hike, noting that it would negatively impact the productive sector of the economy.
Idahosa said, “ How can they do that? Industries are already coping with so many dimensions of inflation in costs. This will be another heavy layer on them. It is going to be a serious burden to the issues that businesses are already facing.”
Similarly, the national Vice President of the Nigerian Association of Small-Scale Industrialists, Segun Kuti-George, condemned the proposed hike. He, however, stated that if the hike is accompanied by increased supply that would drive down the reliance on alternative energy sources for production needs, the productive sector of the economy would be better for it.
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