Electricity Crisis: Cost-Unreflective Tariff

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Another major challenge, causing financial distress in the power sector, is the unrealistic tariff regime for the DisCos, which is not cost-reflective and therefore does not stimulate needed investments that will lead to adequate and stable electricity supply in the market. Whilst the Federal Government has ruled out any electricity tariff hike[11] this remains an option to be considered.

For purpose of emphasis, the Electric Power Sector Reform Act, 2005 (“EPSRA”), which is the principal legislation governing the power sector reform in Nigeria, states in Section 76(2)(a) that:

  1. “(2) Prices for the activities referred to in subsection 1 of this section shall be regulated according to one or more methodologies adopted by the Commission for regulating electricity prices and such tariff methodologies shall:
  2. (a) allow a licensee that operates efficiently to recover the full costs of its business activities, including a reasonable return on the capital invested in business”.
  3. Recommendation:
  4. The NERC, with the support of the Ministry of Power should create the needed framework, which will enable willing sellers of electricity to sell to willing buyers.

    By law, “the Minister may issue a directive to the Commission, specifying the class or classes of end-use customers that, from time to time, shall constitute “eligible customers…”[12]

    In recognition of this provision of the law, Nigeria’s Honourable Minister of Power, Works and Housing, Mr. Babatunde Fashola, SAN, hinted, during an interview he granted in April 2016, that certain groups of “eligible customers” in some parts of the country, predominantly Lagos, have expressed their intention to the DisCos with charge over distributing power to their franchise areas, to buy specific megawatts of electricity at tariff rates to be mutually agreed between these groups of customers and the DisCos[13].

    Where the above structure is adopted, DisCos will be able to distribute power at cost reflective tariffs on a willing seller/willing buyer basis rather than at the subsisting regime of subsidized uniform rates for all customers which, frankly, are unsustainable and unrealistic.

    Source: IWIN

 

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