N213bn intervention will reduce electricity tariff — Ekpo

October 12, 2014 by Okechukwu Nnodim 

 

Commissioner, Market Competition and Rates, Nigerian Electricity Regulatory Commission, Mr. Eyo Ekpo

The Commissioner, Market Competition and Rates, Nigerian Electricity Regulatory Commission, Mr. Eyo Ekpo, in this interview with OKECHUKWU NNODIM dismissed fears that the Federal Government’s N213bn intervention in the power sector will lead to an increase in tariffs

Consumers who buy power assets are calling for a refund. What is NERC doing about this?

It is common knowledge that people have been buying power assets, but the problem with that is that even though you are helping yourself, you are giving an asset to a Disco on which it will now recover the cost of that asset and pocket it. Meanwhile, the Disco did not spend that capital cost. It will of course incur the cost of operating it and cost of depreciation, which is money set aside so that in the future you can buy the asset when it is worn out. But the capital cost, which is also part of the tariff, is not yours (the Disco’s) to recover. It should go to the person that paid for the asset. Because there was no framework previously, the Discos were just collecting all that money without accounting for it and without any clarity as to how those that paid should be refunded. This is not supposed to be so.

Nobody in any civilised country should pay for the asset that serves that person. So, we now have this framework; we have consulted on it, gone through the necessary process, done the internal work and we have finally got all the comments. We are now working on analysing the framework and at the end of November we should publish that regulation. The refund we are talking about does not include meters because that has been captured by the CAPMI programme. This is about big assets like poles, towers, feeders, substations, transformers and all those things that cost millions and hundreds of thousands of naira. A meter is within the tens of thousands cost and we have got a programme for that.

For over a year, NERC has been threatening to prosecute power thieves, but this has not happened. Why?

This is because no Disco has come forward with any individual. Meanwhile, the Discos actually know the people who are stealing. And when I say the Discos I don’t mean the big men in these Discos like the directors. I mean the guys on the ground that deal with customers every day because they are going around and patrolling. For instance, when you have a prepaid meter which on the billing platform has not shown that energy has been sold to it for months, then there is a problem. So, if you go there and energy is being consumed; that is total proof of bypassing taking place.

This has been happening and they know that it has been happening but they are not coming to us. We have in our laws provisions that enable us to prosecute for energy theft. If a Disco cannot do it, we at NERC can do it. We have said to them, if you are afraid of your customers, report them to us. We will have the police to go there, investigate and apprehend the culprits. The civil defence can also do this. Getting the proof is very straight forward; when you see a meter that has been bypassed, that is enough proof. But nobody is coming. We have said also that we know that the biggest culprits of electricity theft are the biggest consumers such as industries and high net worth individuals who live in very expensive houses. They are the ones who commit these offences.

Who takes the blame for not reporting these culprits?

The Discos of course! This is because the consumer is first and foremost the customer of a Disco.

Will the recently announced N213bn intervention in the sector by the Federal Government warrant a decrease or an increase in electricity tariff?

Tariffs must be cost-reflective and the final stage of tariff setting is what we are now going through. We now know the full cost-reflective tariff for a Disco. For instance, from our presentation, you will see that the average tariff for the Abuja Disco will go from N21 to N31 or something like that ordinarily. But the benefit of the intervention is that we have taken out of that tariff. For that N31, it has been aggregated that for each kilowatt sold over the next 10 years, we have taken a sum, which is N213bn, and given it to the Discos as a bulk sum so as to reduce the tariff. We have taken out of it (tariff) in bulk and given it back to you as Discos. You then collect from the customers over that 10-year period and pay back to the Central Bank of Nigeria during the period so as to reduce the tariff burden on customers.

This is a very neat and carefully calibrated way of minimising the impact of the tariff increase. Also, the second thing that the Discos will be doing is that when you have a tariff and you know how much energy you want to sell, you can quantify how much you will need to recover your cost over a period of time. We call that the revenue requirement. Once my revenue requirement is known, the way to reduce or to maintain without increasing the tariff for your customers is to increase energy being sold.

The more energy you sell the more stable your tariff will be. In some cases, if the economy of the country has improved or has maintained good performance, you can actually keep your tariff at that same level regardless of the fact that you have higher costs.

It is the secret of the volume business; the larger your volume, the easier your fixed cost. This thing that we are calling fixed charge can actually remain constant because you can spread out your fixed cost over a wider or a greater quantity of energy which you sell and that is the secret of managing a Disco.

Should Nigerians therefore demand a reduction in electricity tariff?

We are all natural people because we don’t like high tariff. But we also understand the logic of paying for assets that we don’t even have. And, therefore, what I have heard from people is that they don’t have a problem with this tariff because they expect us to do our job, which is to keep the tariff as flexible as possible.

What customers have problems with is the quality of the service. They want us to provide good service. And that is why I always say the responsibility is on the individuals to continue to apply pressure on NERC by telling us to set our customer care standards and enforce them. This is me, a person that works in NERC, saying put pressure on us for us to perform.