The Concern Of Electricity Tariff To Be Reviewed Or Not

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Recently, some have suggested that an upward review of electricity tariffs in NESI will make some parties to meet their financial obligations.

ECG Demo
ECG Demo

This is no more than saying: “let us rob the citizens to pay the so called investors”. The way to address the illiquidity in the system is not to make consumers more impoverished but to dissect the reasons behind the problem. Otherwise, consumers will continually be asked to pay more to build the power system. This will take forever!

In the very early stages of my study of power systems, it was made clear to me that the first thing a government that is interested in economic development does is to build a reliable and efficient power system. Government cannot now shift the responsibility to citizens by asking investors to collect money from consumers through the back door, which is what all the talks about increase in tariffs without commensurate electricity supply amounts to.

For the efficient running of the electricity market, there is need for generation of power, its supply and payment of cost-reflective tariffs by consumers of electricity. The issue around tariffs in NESI is that no one has determined the so called cost-reflective tariff. This has the implication of unending request for increment in tariffs when investors need funds for their private pockets even without supplying electricity.

Gas suppliers provide gas at an agreed cost to Generators who generate electricity onto the national grid owned and operated by the Transmission Company of Nigeria (TCN). The bulk of electricity received by TCN is lost due to technical losses in the transmission network. Technical losses are very expensive hence there is need to fix the problem rather than asking consumers to pay for the cost of losses.

TCN needs to invest in the network to reduce technical losses in the network. As if this is not enough, further loss of electricity is experienced for the same reason when the remainder electricity passes through the distribution network such that what is available for distribution to consumers nationwide is next to nothing. This is known as the Total Technical Losses (TTL) in the system. TTL in NESI is very high that no matter how many times and by however much tariffs are increased, there will be little or no electricity to distribute if the technical losses are not reduced. This is akin to putting water in a leaking pot. You hardly retain any!!!

To make matters worse, the years of decadence in the society has resulted in consumer apathy to payment for electricity consumed (especially government MDAs), meter by-pass, electricity theft, vandalisation of electricity infrastructure, corruption by electricity workers and so on. Thus, the small amount of electricity distributed for few hours in a month say, to consumers have not been fully paid for. This inability to collect money for electricity distributed is referred to as non-technical (collection and commercial) losses.

Total non-technical loss in NESI is by any standard huge and no matter how many times and by however much tariffs are increased, there will be little or no money to run the electricity market unless they are addressed. The money collected from consumers by the distribution companies (DisCos) is meant for the payment of all the players in the electricity supply chain to cover their various costs including NERC, NBET, generators, gas suppliers, TCN, and the DisCos. This is only part of the liquidity problem.

Even if consumers pay for electricity consume, there will still be a huge shortfall between what is generated and what is supplied due to the high percentage of losses in the network. The liquidity problem in NESI has the potential to keep increasing forever if the right things are not done first, even before talking about increasing tariffs. The total loss of electricity in NESI is known as the aggregate technical, commercial and collection losses (ATC&C). This is why there can be no cost-reflective tariff for electricity consumed when the bulk of it is lost and unused.

For consumers to pay the cost–reflective tariff advocated for by the investors, they will be paying for the cost of losses on the network even when the investors are doing nothing to reduce losses. The network losses have to be addressed and customers need to be provided with electricity meters by the DisCos as a starting point. This is known as Network Investment. A normal investor sources for funds (not from consumers), invests in the network, and is allowed by the regulator (NERC) to recover costs efficiently invested by means of a cost-reflective tariff (CRT).

Efficiency is of utmost importance in talks about CRT, otherwise, the consumers will forever be short-changed!
Unfortunately, most of the investment required in NESI will be in dollars and with the exchange rate what it is today, to pay a cost-reflective tariff will be daunting for even the well-off in the society.

The government is in charge of gas reserves that international oil companies prefer to sell abroad but cannot ensure gas is safely transported to gas power stations which make up over 80 percent of our power generation portfolio. Government can make gas available for power generation at subsidised rate and diversify our energy portfolio to include power generation from other sources. NERC should ensure that Investors invest in the network, reduce ATC&C, and provide electricity to metered consumers before talking about increasing tariffs.

By: Idowu Oyebanjo

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