Caution on New Electricity Tariff

One of the most worrisome plagues confronting the nation is unarguably the issue of stable electricity supply. The magnitude of the problem is such that it seems to hold the sole key to Nigeria’s economic leap. No doubt, several dormant aspects of the nation’s economy seem to be waiting to be activated by a more regular supply of electricity. It is regrettable that much as the Olusegun Obasanjo administration recognized the import of stable electricity and seemingly focused on it, it all ended in very little improvement in the power supply situation in the country.
The electricity problem, understandably, became one of the inherited liabilities of the present administration, which for one year, has also been fiddling with workable ideas on how best to fix it.
Efforts in the past to bring in private investors into the scheme have recorded little success. Although the National Electricity Regulatory Commission (NERC) has, for instance, registered over 25 private companies to generate, distribute or transmit electricity, nothing has happened, essentially because prospective investors have among other reasons, cited the low electricity tariff, as not encouraging. The option, they reasoned, was to increase electricity tariff to a level where they can recoup their cost more readily. But how could a responsible government increase electricity tariff in the face of worsening service delivery?
While it could be argued that without increasing the cost of electricity, investors will not be interested in the sector, it would be punitive to raise cost at a time when service delivery is so sloppy. For a long while this has been the dilemma facing this critical sector. And given the fact that government was determined to get the task of stable electricity into the domain of the private sector, acceding to the demand for higher tariff became imperative, or so it seemed. The NERC has nonetheless introduced the Multi Year Tariff Order (MYTO) aimed at spreading likely increase in tariff over a period of five years in a way that consumers will not experience tariff shock.
The Federal Government, persuaded by the argument of NERC, recently approved an increase in the tariff, essentially as a motivation to prospective investors in the sector. The kernel of the agreement between the Federal Government and the NERC is that government will subsidise the tariff with the sum of N177 billion within a period of three years. In other words, consumers will continue to pay the current tariff for the next three years, while the government pays the difference of what the tariff increase will represent. The idea is that with the subsidy paid, enough investors would have been sufficiently motivated to invest massively in the sector in such a way that within the said period, a remarkable improvement in electricity supply would have been recorded. Towards this end, the government plans to subsidise the tariff with the sum of N77 billion in the first year.
The calculation therefore is that with clear evidence of improved services, consumers will be more receptive to the idea of paying a little more for the improved service, and given that the increase will be graduated over a period of five years, the pinch will hardly be felt.
Although we commend, albeit cautiously, the step adopted by the Federal Government to meaningfully achieve result in the perennial electricity crisis, we advise that this subsidy should be saved from the several abuses suffered by subsidies in other sectors like petroleum, agriculture (fertilizer) etc. Calculated steps must be taken to ensure that the subsidized funds are channeled into improved services.
It is only such a measure that will guaranty the success of the scheme and the eventual relief from the many years of darkness and choking hardship occasioned by the failings in the sector.
Also crucial is the need for the NERC to effectively monitor the tariff regime in such a way that the investors do not squeeze consumers in a bid to have a hastened recoup of their investment.