Power sector privatisation: From blackout to higher tariff

Most recently, 75% payment of the unbundled Power Holding Company of Nigeria (PHCN) Generation companies (Gencos) and Distribution companies (Discos) was made by the new owners. Analysts have described this as a major breakthrough in the annals of Africa’s largest privatisation exercise. With this acquisition, the Federal Government is faced with the herculean task of immediately […]

Most recently, 75% payment of the unbundled Power Holding Company of Nigeria (PHCN) Generation companies (Gencos) and Distribution companies (Discos) was made by the new owners. Analysts have described this as a major breakthrough in the annals of Africa’s largest privatisation exercise.
 With this acquisition, the Federal Government is faced with the herculean task of immediately handing over power firms to the successful owners and declaring open the Transitional Electricity Market (TEM), a much awaited stage by anxious owners and power sector stakeholders.
The Minister of Power, Professor Chinedu Nebo in his recent update on the power reform said about 70 percent of PHCN staff have been paid off to confirm speculation by the Presidential Taskforce on Power that, 2013 would witness the commencement and conclusion of payment of labour severance packages to former PHCN staff as part of the handing over processes.
While a huge number of the labour force is being laid off due to the reform, the big poser is that, another vast majority may face possible retrenchment or unemployment in the wake of a skyrocketing electricity tariff system. The National Electricity Regulation Commission (NERC) recently declared a full implementation of the Multi Year Tariff Order 2 (MYTO-2) which saw a huge number of enterprises squealing for help as the charges were taking their toll on them.
Nonetheless, the reform process is gravitating, with a shift from the National Council on Privatisation (NCP) and Bureau of Public Enterprises (BPE) which were in charge of bidding and other reform processes, to the regulatory and bulk market agencies.
Permanent Secretary, Ministry of Power and Chairman, PHCN Labour
Committee, Ambassador Godknows Igali, last Wednesday declared open the commencement of formal registration of all National Electricity Regulation Commission (NERC) licenced market participants in the Nigerian Electricity Market. It opened up a gateway for the successful  owners of privatised power firms to fully register under Operators of the Nigerian Electricity Market (ONEM) awaiting commencement of formal electricity business.
 Experts have said that running a private power sector demands much fund to be committed to power generation, transmission and distribution. The CEO of Transmission Company of Nigeria (TCN), Mr Don Priestman while explaining a new 4-year TCN network expansion blueprint from 2013 to 2017 noted that power is expected to grow from  10,000mw initially to 16,000mw with a transmission capacity of 12,800 in 2017.
 Mr Priestman who is also head of the TCN partner firm, Manitoba Hydro International, called for more funds to manage TCN’s affairs for the two-year contract period before handing over to indigenous managers, a situation that corroborated the increased tariff system of NERC following its earlier launch of Multi Year Tariff Order 2 (MYTO 2).
 Eyebrows are being raised by members of the public regarding the tariff which some describe as hampering a business-friendly society. In its efforts, NERC under the chairmanship of Dr. Sam Amadi at a stakeholders gathering explained the reasons for the increase which he said, was according to the MYTO 2 declared in 2012. Amadi had concluded that for Nigerians to have good power supply under a privatised sector, a significant tariff increase was inevitable.
 Still, stakeholders through national dailies and other media have continued to their discomfort, including a report of several enterprises winding up in Kano and Kaduna states following the implementation of MYTO 2.
 Chairman of Kano State Polythene Bags Manufacturers Association, Alhaji Dalhatu Sanusi in a recent interview decried the ousting of over 200 small scale entrepreneurs from business in the Dakata industrial layout. Alhaji Dalhatu noted that, “from June 2012 when the fixed charge of N536 we were paying was jerked up by the PHCN to N104,600, over 200 of our colleagues have closed their factories.”
The direct implication of the tariff hike is not only felt by the entrepreneurs, but a mass majority as the total of retrenched workers was pegged at 169,000 just in the district.
 This is coming at a time when the Federal Government and its transformation agenda are bent on creating jobs and enhancing social lives. An expert in power sector and energy resources, Mr Ayo Olufemi has drawn an analogy with the 2012 subsidy removal crisis where the masses that the government claims it works for were exposed to fresh hardships. He advocated adherence to the metering system alongside a review of the current five-year tariff plan to alleviate the plight of the masses.
New owners of the unbundled PHCN utilities are not left out in the plea of structured and convenient tariff system. Chairman of the Roundtable of Distribution Companies, Dr. Ransom Owan, who spoke on behalf of the new distribution company buyers said, “as at now, the Discos operate at a loss and buyers would quickly deploy their respective turn-business around plans.
 However, a cost reflective tariff, which guarantees a regulated return and covers all payments is not yet producing the desired results due to systematic and structural problems. If the Discos are unable to cover the cost of energy delivered to them, the bulk trader, transmission company and generating companies will be adversely affected.”
 NERC’s fixed tariff charges, ranging from N500, N700 and N800 for the three categories of consumers is calculated to be over 100 percent increase; consumers are required to pay higher tariff on two fronts, namely, fixed cost and energy cost, also referred to as cost per kilowatt hour. Electricity consumers, be they private or corporate might be groaning under the reform’s under performance in the power sector.
According to the current MYTO-2 plan, year 2012 and 2013 are the considerable years as tariff charges are expected to step up in the ensuing years throughout the five-year plan. Although, in a recent presentation, NERC DGM, Market Competition and Rates, Dr. Haliru Dikko explained that the significant difference should be expected from 2014 to 2016 as that would substitute to cushion the low tariff charges for the first two years (2012 and 2013).
 While the masses are already groaning under the heavy weight of this tariff system, more of such should be expected in less than 12 months to come as backed up with claims of improving the power sector.
Following a long lost hope in the nation’s power system with recounting experiences of massive exodus of manufacturing companies to neighbouring countries like Ghana in search of power-friendly business environments, it would be described as suicidal for the launch of the full effects of the tariff system, whatever the name may be.
Such automatic adjustment in tariff every year would have been economically veritable, only if power supply had been stabilised, expected megawatts per year realised, and consumers experiencing noteworthy gains of the much-fanged power sector reform. With the reverse being the case, any hike in tariff is tantamount to putting the cart before the horse.