Power sector experts have raised concerns about last week’s directive by the minister of Power, Mamman Sale, suspending the electricity tariff increase by the Nigerian Electricity Regulatory Commission (NERC), saying the action not only sent wrong signals to would-be investors but could worsen the liquidity crisis in the power sector.
The experts argued that the persistent shortfall in remittance order from the Distribution Companies (Discos) on growing liquidity concerns could be flouted on the guise that people are not paying the accurate cost of power arising from the tariff suspension.
The minister last Thursday directed NERC to suspend the upward tariff review, pointing out that a Federal Government committee working on the review should be allowed to complete its work before any adjustment. But this development has not gone down well with some stakeholders who believed this has implication on the market.
“The minister has no power to suspend the position of the law as spelt out in the Multi-year Tariff Order (MYTO) methodology, which is a regulation issued pursuant to the Electricity Power Sector Reform Act of 2005,” Chuks Nwani, an energy lawyer and power sector governance expert told Businessday.
READ ALSO: Lagos hit more by ‘extremely aggressive’ second wave of COVID-19
According to Nwani, “the Act specifically states the methodologies of review, how the review and bi-annual tariff review considering adjustments in exchange rates and inflations concerns.”
He observed that the regulator did need any directive, as the MYTO methodology provides the needed template for minor tariff review and adjustments biannually to sustain investors’ confidence and stabilise the market.
“The Electricity Power Sector Reform Act of 2005 adjusted the tariff and it is the Act. The minister cannot suspend the Act. If he wants the Power Sector Reform Act of 2005 reviewed, he has to approach the National Assembly. His power is mere advisory as he can’t suspend an Act.” Nwani stated.
The regulator had last week confirmed electricity tariff increase by two naira to four naira from January 1, 2021, to reflect an increase in inflation and foreign exchange rates.
The regulator in a statement by its assistant general manager, government, external and industry relations, Michael Faloseyi, said although tariff increase for Bands D and E (Customers getting power below 12 hours daily) remain ‘frozen’, it, however, admitted that the tariff rates for even these classes of customers were ‘adjusted’ upwardly.
Making reference to the MYTO methodology, the regulator said: “in compliance with the provisions of the Electric Power Sector Reform Act (EPSRA) and the nation’s tariff methodology for bi-annual minor review, the rates for service bands A, B, C, D and E have been adjusted by N2.00 to N4.00 per kilowatt-hour (kwhr) to reflect the ‘partial’ impact of inflation and movement in foreign exchange rates.”
Raising further concern on the development, Sam Amadi, a former chairman of NERC, told Businessday that the action of the government would not give the needed stability and confidence to the sector.
“The system is in serious crisis and the level of leadership needed is extraordinary. The regulator can suspend pricing to carry out consultations if need be, and not what the government does. Tariff ought to be peer-reviewed by the industry based on clear methodology. The regulator must continue to give industry assurance,” Amadi said.
He added that “the matter is not tariff increase, but an assurance that the market is well-governed and ensuring that everybody has confidence that actions taken will take us to where we need to be.”
