Sunday, July 17, 2016

Tariff reversal: We won’t pull out, say power investors



Investors in the power sector have declared that they will not pull out of the industry despite the recent judgment by the court, which directed the Nigerian Electricity Regulatory Commission and the Federal Government to reverse the 45 per cent increase in electricity tariffs. The investors also stated that if the courts insisted on reversing the increase in tariffs, Nigerians should be ready to return to the use of generators as a major source of electricity. Although the power distribution companies and NERC on Friday filed separate appeals against the court ruling, the investors stressed that any attempt to implement the reduction in electricity rates by 45 per cent would lead to a total collapse of the sector. A Federal High Court in Ikoyi, Lagos had on Wednesday reversed the 45 per cent increase in electricity tariffs by NERC and the Federal Government in a landmark judgment. The court declared the hike in tariff as illegal and directed that it should be reversed immediately. The court held that the implementation of the 45 per cent increase constituted a violation of its interim order and awarded N50,000 cost against NERC. Speaking to SUNDAY PUNCH on the issue, the Executive Director, Association of National Electricity Distributors, an umbrella body for the Discos, Mr. Sunday Oduntan, said, “If the courts insist on the reversal, then the system will collapse; but we are not pulling out. “The system will collapse on everybody’s head and, of course, it will affect everyone. What we are talking about here is how the sector can survive; how we can bring in liquidity into the sector and make sure that the product is appropriately priced. “Nigerians have a choice to make; if we want to continue to use generator, then let’s go ahead to oppose the tariff and, of course, those who import generators will be happy. I’m sure those whom I call the generator mafias will be very happy with this development.” According to him, the Discos collect tariffs not just for themselves alone but on behalf of the whole value chain. He said, “It might interest you to know that only 24 per cent of the tariffs get to the Discos. Secondly, it is in our interest to have power from the grid, because the average tariff across the board is N24 per kilowatt-hour. Now, the average rate for generator is N50 per kilowatt-hour and that is double the amount from the grid. This means that it is still cheaper to get power from the national grid as against getting it from a generator. “Also, the quality of power from the national grid is far better than the frustration from generators and we have tested and confirmed this. So, as we are appealing to people, what we are saying is that let there be light.” Oduntan maintained that if the distribution companies were denied the right to appropriate pricing of electricity tariffs, they would not remit the required sum needed to generate power to the generation companies, adding that this would eventually bring down the whole value chain. He said, “We are not going to reverse the tariff because we have appealed (the court judgment). When you give a judgment at the Federal High Court, I can still go to the Court of Appeal. From the Court of Appeal if I’m not satisfied, I can go to the Supreme Court, which is why we have these layers in our jurisprudence. Whatever is said at the Supreme Court is said with finality and that is where we will head to at the end of the day if we don’t get justice at the Court of Appeal.” The Acting Chief Executive Officer, NERC, Dr. Tony Akah, also admitted that the reversal in tariff would impact negatively on the power distribution companies in particular and on the sector in general. He said, “There is no doubt that it is going to be inimical to the development of the power sector and it will have a ripple effect on the whole economic development of this country. But rest assured that as soon as we get the full content, we are going to make appropriate communication to that effect.” But some university professors and stakeholders in the sector expressed divergent views as regards the ruling by the Lagos court. A professor of financial economics from the University of Uyo, Leo Ukpong, wondered why the Discos would increase tariffs without any tangible or commensurate improvement in power distribution and supply. He said, “The reaction from the Discos is expected. However, after the split of the industry into segments, the companies were expected to improve their facilities. But they did not do that. For example, it will be a very simple thing of justifying the rates or charges if the Discos had installed meters in most of the residents and business places; but they did not. “They went on charging in most places by estimated billing. Now, it is very difficult for you to justify that when consumers of electricity have not seen any improvement. The facilities to deliver electricity have not been upgraded and power distribution has not improved.” Ukpong added, “So, I think the court has done the right thing by denying them the increase and by forcing them to go and improve the facilities and provide some justification for the increase in rates. “If they threaten not to supply or distribute power, what the government should do is to increase the number of firms in the sector and this will engender stiff competition. By so doing, those who feel they can’t cope will run out of the business.” But Prof. Wumi Iledare of the Emerald Energy Institute, University of Port Harcourt, told our correspondent that there was no way the Discos would fix tariffs without the approval of NERC. He also noted that NERC was empowered by an Act and that the commission must have consulted widely before approving the 45 per cent hike in tariffs in a bid to grow the sector and help the ventures in the industry improve their service delivery. Iledare said, “On this issue, there are so many things to look at. First, what did the Act that set up NERC say? We cannot base judgment on sentiment; we have to follow the rule of law. What is the basis of the court ruling? Is it that NERC has no power or did it overstep its boundaries or the magistrate just ruled on the basis of sentiment? “The process is clear; the Discos will make their presentations to NERC. The commission will have its experts review these presentations.”

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