The controversy pertaining to the sudden reduction in electricity tariffs few months to the 2015 elections, was resurrected recently when Eyo Ekpo, then a commissioner at the Nigerian Electricity Regulatory Commission (NERC) denied being part of the decision making the process. He also criticized the move, labelling it a “patently bad decision”.
In what can be described as a tirade between ex-government officials of former president Goodluck Jonathan, the shenanigans that preceded the privatisation of the power sector and the ensuing tariff changes was laid bare by two of the most significant people in the Nigerian Electricity Regulatory Commission, NERC.
Two officials: Dr. Sam Amadi was the NERC Chairman during the Goodluck Jonathan era while Eyo Ekpo was the commissioner in charge of Market Competition and Rates. Both men played key roles in the sale of equity in distribution and generating companies in 2013 and more than anyone else know exactly what went down.
What led to this: Eyo Ekpo was apparently responding to a series of commentary rendered by Sam Amadi on the current state of the power sector, since privatisation in 2013. The power sector is under renewed scrutiny following the end of the first 5 year period during which government is expected to review the performance of the investors in the privatised assets.
Ekpo’s tirade: In his first thread, he blamed Sam Amadi for not listening to his advice for a more cost reflective tariff, which he believed would have led to a more market-oriented industry.
- Rather than allow for a full cost reflective tariff, Dr. Sam Amadi, reduced tariff by zeroing collection losses which discos typically charge back to the power sector consumers.
- Collection losses are the balance of a disco’s electricity bills that never get paid by consumers.
- Eyo believes, allowing the discos to recover these losses by spreading it across customers via tariff would have given them the required funding to put measures in place (such as metering) to recover the losses.
- Therefore by reducing tariffs, instead of increasing them, discos fell into a deeper financial hole, leaving them unable to pay the market for power generated and thereby slowing down the entire power privatisation program.
- According to Eyo “@SamAmadi’s inexplicable tariff-reduction decision kicked in and had the effect of totally destroying @NERCNG’s credibility and thus confidence in the market itself. Till now, the electricity sector (it is definitely no longer a market) is yet to recover.”
- He also alleged that the former NERC chairman took the decision to reduce tariff without the support of other NERC commissioners. “Dr. Sam Amadi cannot credibly say that the tariff reduction instigated by him in March/April 2015 was a good decision taken in accordance with regulatory due process. He also cannot say truthfully that all 7 Commissioners in NERC unanimously took that decision.”
As expected, Sam Amadi responded in fiery fashion accusing Ekpo of falsehood and licking his wounds for failing to take his position as Chairman of NERC.
- He claimed Ekpo was part of the decision making that led to the decrease in tariffs by eliminating the collection losses.
- According to Amadi, the decision to reduce collection losses was collective and included Ekpo’s input but that he was on leave when they took the decision.
- He claimed, before Eyo went on leave, his proposal for a tariff increase was not approved by the commissioners are they believed it would increase tariffs by 180%
- He also claimed the decision was based on “evidence-based” citing neighbouring Ghana, were collection losses are zero as an example. In Ghana collection losses was set at zero. This means that our tariff structure was inefficient. we were providing a
- disincentive for efficient operation. The memo was evidence based. The commission considered the memo and voted to reduce the collection losses to zero so that each disco will produce proof of its collection losses.
- He claimed members of the Steel Industry had complained that tariff increases would cripple their industry and render them bankrupt.
- He also accused Eyo of trying to take his job as NERC Chairman
Eyo replied again basically disparaging Amadi’s thread claiming he never wanted NERC leadership position and insisting that Amadi was to blame for not following through with the tariff plans they had for the industry.
Bottom Line: To see two ex-leaders in the power sector trade words over the privatisation of one of the most important sectors in the economy is a big shame.
- Both men are perhaps eyeing a bigger role in Nigerian Politics and trying hard to defend their roles in what many see as a poorly midwifed privatisation of the power sector.
- As Twitter user @Flexdada summed it up, “All i can deduce from this buck-passing thread from @eyooekpo and @SamAmad is that most of the people piloting the affairs of this country are bunch of egocentric people that cannot co-exist without squabbles at the detriment of the people. You guys are a huge disappointment.
- As the government considers what next to do to salvage the floundering power sector, it must ensure that the right set of leadership, with a clear understanding of how markets are designed to function, are appointed at the helm of affairs of power sector regulation and supervision.
Collection Losses explained: Assuming I sell 5,000kwh worth of power to you at N10, my revenue would be N50,000. Thus I expect that you pay me N50,000 without a loss. However, customers in Nigeria hardly pay the full electricity bill due to estimated billing. If my collection loss is 20% then it means I only get to account for 4000kwh of energy thus earning me just N40,000. This means discos are unable to pay for the full cost of power generated to them.
To mitigate this, the market charges back the losses to customers and holds discos accountable on a path to reducing those losses. To charge back and adjust the tariff it basically works from revenue to answer. It divides the 5,000kwh by the 80% (less the 20% loss) to arrive at 4000kwh. To derive the tariff it needs to charge customers so it can earn its N50,000 revenue for the 4,000kwh it can account for, it divides the revenue by the 4,000kw. N50,000/4000kwh= N20/kwh.
Thus tariff increases from N10kwh when the losses were zero, to N20kwh when the losses are 20%.