Still on The Electricity Price Hike: A Rejoinder to Chinedu Ekekee, By Adetayo Adegbemle
When I woke up on Sunday morning to read Chinedu Ekeke’s article titled “Sorry, But Here’s Why You Must Pay More For Darkness”, my curiosity wouldn’t allow me let the article be, I had to delve in and read, looking for some illuminations into something I might have missed during the whole saga, or if I may actually call it what it is – Scam of electricity in Nigeria?
For all who had been following PowerUpNG’s campaign since January 2014, one fact that definitely stood out is our unalloyed support for the privatization of the power industry which we deemed absolutely necessary.
What is disheartening, however, is the underlying cancerous corruption, which has made the whole process a farce, & unless curbed immediately & tends to label Nigeria an embarrassment in the Committe of Nations. The rot is now deeply ingrained that people have been disenfranchised about the process while only a packet of voices can now be heard campaigning against the hostage situation in which the power industry is held under the conniving eyes of Nigerian Electricity Regulatory Commission (NERC), the body that was assigned to protect it.
The issue to be addressed today, however is the “price review” that was dumped on Nigerians (Consumers), as announced on May 27th, 2014, and it took effect promptly on June 1st.
If you would recall, this isn’t the first time the leadership of NERC would be making such price review, but this is likely the first time anybody would be asking questions. The first major “price review” done by Dr. Sam Amadi, under the MYTO2, was done in year 2012.
As at 2012, According to Sam Amadi, about 50 Private Independent Power Projects have been licensed to produce 20,000 megawatts of power in the near future and if these plants are not cost-effective, then the ultimate investors might not invest as expected.
Speaking further, the federal and state governments are looking at selling their various Independent Power Plants, and the tariff has to be right for the right investors to come in. Amadi also said that the NERC was looking at regulating the price now, so that in the near future, none of the licensed power distribution companies will suddenly introduce cutthroat tariff or distribute at a price higher than the set tariff.
That was 2years ago. Dr. Sam Amadi insisted that this was the only way forward, but haven’t you heard that time answers all question?
Quoting Sam Amadi further, The NERC boss who led a team of officials of the Commission explained that the new electricity tariff is established to ensure stable power supply and guarantee efficient customer service delivery in Nigeria. That was 2012
Based on these utterances, shouldn’t we ask them what has gone wrong? How come two years ago we were compelled to pay an increased price for electricity based on those promises, and now, the condition has not improve?
Let us examine the Policy framework that the NERC leadership claimed as their Bible, the Multi Year tariff Order 2. When Chinedu Ekeke visited the Press briefing where the price increase was announced, a section of that document was quoted. He said and I quote him “Mr Amadi drew reporters’ attention to this when he cited a section of the EPSR act. In section 5.76(2)(a) of the act, NERC is mandated to set a tariff methodology that allows “a licensee that generates efficiently to recover the full costs of its business activities, including a reasonable return on the capital invested in the business”.
Similar to the case we have with religion adherents, we have always find it convenient to quote part of the Holy books that best suit our intentions, good or evil, at that particular instance, and to ignore the rest.
This is unfortunate because the last part, Section 8, of that document signed by Dr. Sam Amadi gave conditions for the MYTO2 document itself to be operative. This WAS Never REVISITED, even by Dr. Sam Amadi that signed it.
Now, let us examine the metrics of Price Review, further using the MYTO2 framework. There are several technical and economic assumptions made to arrive at figures for a price review to be considered. I will not bore you with the detailed explanation, because I don’t understand it either.
Top on the list is the inflation rate of the Economy. The Sages at the NERC has projected an inflation rate of 13% for Nigeria for the year 2014. For all those economists, and those who understand the language of the market, Every nation tries to keep her inflation rate low so that prices of goods and services will not high in the market, thus the purchasing power of their people is boosted.
On this, Nigerian economy out performed the expectation of NEC by posting an improvement of going down to 7.5%. Based on this factor alone, Prices of Electricity SHOULD GO LOWER.
Next factor to be considered for the review of Electricity Tariff is the exchange rate of Dollars from the Central Bank of Nigeria. Once again, the Sages that we have at the NERC projected further poor economic performance by expecting our Naira to have fallen to N178 to a 1Dollar. The dollar/Naira rate from the CBN as at March 30th, 2014 was 154naira to a dollar. Once again, Based on this alone, ElectrictyTariffs SHOULD GO LOWER. Couple the Projected Inflation Rate and the Dollar Exchange Rate; we should be talking of lower reviews of Electricity Tariffs.
Now there are other factors like the Weighted Average Cost of Capital (WACC) which has been constant over the period, Asset Valuation and Rate of Depreciation, These were the basic guides to fixing Electricity Tariffs.
It should be noted that these factors are out of the control of the Nigerian Electricity Regulatory Commission, and solely dependent on the performance of the Economy in General. On these basis, Nigerians should have been given a reprieve, translating into a downward reviews of the Electricity Tariff.
Now comes the Factor that is directly under the control of the NERC, and this make inputs in the prices of electricity in Nigeria. Top of the list is Asset Value and Capital Expenditure. According to the MYTO 2 document, “NERC has engaged local and international consultants to determine the distributor/retailer’s asset values on the basis of optimized replacement value and conditioning principles to arrive at the fair value of assets. This asset base was depreciated using rates shown in Section 4.5.”
Let’s assume that this has been set. The next important input to the Electricity Tariff is the “Generation Capacity Projection”. According to the MYTO 2 document, prepared by Dr. Sam Amadi in 2012, and signed in May 31st of same year, as quoted below
“This is a very significant variable in tariff determination. Under MYTO 1, projected generation capacity was put at 4000 MW for 2008, 6000 MW for 2009, 10,000 MW for 2010 and 16,000 MW for 2011. However, none of these projections were ever achieved, causing additional major disequilibrium in the market and contributing very significantly to the suboptimal performance of MYTO 1. Therefore, having consulted with key generation stakeholders, MYTO 2 is based on the following conservative but realistic gross daily generation capacities”
From above, it is instructive to note that NERC, under Dr. Sam Amadi has made “conservative but realistic power generation projections” that were never met, as it was the failings of the MYTO 1 document.
Their failure to meet this power generation target is the sole reason for this increase in Price. Nigerians are paying for the inefficiencies of a system as championed by NERC. Nigerians are PAYING MORE for DARKNESS.
Nigerians, this is sad, and I believe every Nigerian should rise up and speak against this evil. If the leadership of NERC cannot meet “conservative but realistic projections”, please why can’t they allow someone else to try?
Going this argument, It is apparent that the leadership of NERC does not have the moral willingness and mental capacity to take us out of the woods.
The situation has reached an epidemic level and we cannot afford to keep quiet further. We need to rise up with one voice to challenge the inefficiency of NERC.
For how longer will we continue to grope as slaves in our own country? What gives us the impression that the cabal that has held us all hostage for this long would be willing to let go? Who is Dr. Sam Amadi really working for?
Allow me to address one little issue as I will quote from Chinedu Ekeke’s article below
“To further drive this complex message down, Mr Eyo Ekpo, a lawyer with vast experience in both private legal practice and Nigeria’s public sector administration, drew a parallel with an office building – NERC’s Adamawa House high-rise office building in an upscale Abuja Central Business Area – and how its tenants will ultimately bear the cost of recouping investment for its developer. An amount should be recouped from each floor, and whether the floor is occupied by one tenant or fifty, the investment in that floor does not alter. It then follows that with more tenants comes reduced rent. Mr Ekpo is NERC’s Commissioner overseeing Market Competition and Rates. The wholeness of his knowledge in the electricity sector, an industry he joined in reforming since 2001, was not in doubt. It was clear that the topic in discourse was his beat.”
You see, there is not defending a bad position, I will allow right thinking people of Nigeria to make their inferences from this unfortunate comparison. I wonder though if the developer of that building had asked Mr Ekpo to subscribe to a non-existent service. Real Estate is prime market; there are other buildings in Abuja that would meet NERC’s budget and specification. That building was not shoved down their throat. The basis of comparison is fault, and unfortunate. Well, I am not surprised though, because this is the same Commissioner that claimed that Nigerians don’t want to be metered.
One last question here: Has anybody heard of the N2.9bn Federal Government Metering Funds before? Do you know what happened to it? I was made to understand that this fund was released in 2011, for Meters to be bought for Nigerians.
More to Come.
Adetayo Adegbemle is a public opinion commentator/analyst, researcher, and the convener of PowerUpNigeria, a Power Consumer Advocacy Group, based in Lagos. (Twitter: @gbemle, @PowerUpNg
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