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ENUGU STATE ELECTRICITY REGULATORY COMMISSION’S OPTION
The controversy over the Enugu Elec tricity Regulatory Commission’s decision to lower the electricity rate charged within its domain by the Enugu Electricity Distribution Company, is a case in point. The reasoning that electricity distribution companies can charge the same rates across all 36 states in Nigeria is a myth.
Effecting the Band ‘A’ rate of N209 across Nigeria’s Lagos,Yobe and Edo, for instance, cannot be correct because their cost structure in these states cannot be the same.
The Enugu State Government’s decision must be seen for what it is, freedom of each state to control the development of its Electricity market, according to its own dictates.
What the State’s Electricity Regulatory Commission has done is to take a community approach, such that if all the electricity available for distribution in Enugu is 16 hours, then let every consumer get the 16hours equally. As such, those who can subsidise with diesel power can do so. Others who cannot will manage what is available, such that everyone pays the appropriate price for 16 hours of electricity- say N63 per unit as charged for Band ‘B’ that guarantees the same number of hours.
It could be higher in some states, like Lagos, because of the higher cost structure therein. That notwithstanding, it is unacceptable that distribution companies are allowed to charge arbitrary rates.
The National Regulator – the Nigeria Electricity Regulatory Commission (NERC) must not allow this to go on, especially as no improvement has been seen in their services, despite this rate hike. Even the 20-hour guaranteed to Band ‘A’, is not being delivered. Although they collect higher revenues, nothing has really changed. Now they give the failing national grid as the new excuse for their failure to deliver the service they are charging more money for. Instead, they have even created problems for those caught in their Band ‘A’ arrangement who cannot afford those exorbitant rates. It is not everyone living in Ikoyi, for instance, that can pay the N209 per unit Band ‘A’ charged arbitrarily imposed.
The NERC must interpret its role as regulation and not control. Regulation means providing licensing guidelines, ensuring technical standards and protecting consumers from exploitation. This will ensure consumers are not overcharged, and is not the same as price control, because prices are a function of the market.
Once, the regulator starts to set, or approve prices that is not properly determined, then there is no market
A market must evolve to set its prices, a product will sell more if the price is right, but sell less where the opposite is the case. In Nigeria’s electricity sector, the problem is the dearth of electricity and yet the providers want to offer the service at the price they can get away with. That is exactly what they have done with the banding system. What they offer is same product, with no differentiation.
it is the same everywhere. This discriminatory pricing makes no sense, which is why the industry’s national regulator must be provided with all the technical details to allow it offer guidance without prescribing prices. The role of NERC is important in this regard because of the monopolistic tendencies of electricity as a utility.
The regulator must ensure that what is claimed as electricity subsidies, is not for distributing inefficiencies, at a time when the current pricing model is coming on the back of zero real investment by the distribution companies, and at a time efficiency has remained zero, even after 10 years of privatising the old National Electric Power Authority (NEPA), later Power Holding Company (PHCN).
On the other hand, the Power Generation Companies (GenCos) have consistently increased their production capacity, feeding the failed National Grid with more power that it cannot distribute. Such increased capacity, therefore, has not brought the desired relief to consumers. They have the Federal Government as their back stop in the name of receiving subsidies, being payments for electricity generated but they cannot collect from the Distribution Companies. It is worthy of note that the DISCOs have refused to meter electricity users and cannot, therefore, collect payments fully from electricity users.
Under such an untidy arrangement, the GENCOS claim the Federal Government owe them N5trn. This is the win-win business model they have created- generate power, send to a National Grid that is unable to distribute up to the capacity supplied, only to rely on the government to pay what they cannot collect from the DiSCOS.
If they manufacture any other product and cannot get paid, will they continue to produce?
So, the question is, if the Federal Government says it will not pay any more subsidy, the GENCOS have to change their business model, as they cannot continue to generate what is not consumed.
My suggestion is that GENCOs should find a way to cooperate with States in their area of coverage to build Regional Grids as a further expansion of their business for sustainability. They must also work with Distribution Companies to find new ways to connect and bill customers so their payments are earned from consumers. If DSTV, for example, can connect, bill consumers everywhere and cut them off for failing to pay the subscription at the end of the month, Distribution companies should also look to new technologies that can help them do this. Obviously, the old metering system is not working.
The recently introduced segmented Band system ( A, B, C ) is questionable. It is discriminatory and adds no value to the system, it has only allowed the distribution companies take in more money without offering any improvement in the service.
In fact, what they have cleverly done is to take the extra 12 hours and eight hours from Bands C and B, which they then give to Band A as extra hours to make 20 hours per day. Even so, they have not been able to guarantee, and collect the diesel money from those who can afford to buy.
In other words, they are claiming the first right on diesel expenses of the elite who can afford to pay the increased charges for the extra hours of light they get from the poor who cannot afford to buy diesel. So, this is essentially movement without any motion, or improvement to the overall electricity situation.
What Enugu State has done is an attempt to make electricity rates lower for everyone, while also making electricity available to all at affordable rates, a community approach that allows electricity users in the state to share what is available at affordable at a price affordable to everyone.
The Enugu State Option is not new in Economics. Just before the administration of Ronald Reagan in the U.S, Professor Arthur Laffer popularised a concept to lower taxes in California, thereby expanding the tax base so that more people pay lower rates, making it more inclusive. If rates were reasonably low, more people will have no need to evade tax payments, and tax revenues will actually soar. This was how the famous Laffer Curve came into Economics. If you lower the rate, the curve flattens out, allowing more people to be brought into the tax net, translating to increased revenue in the system. By the same token, cost of enforcing compliance also drops. This became the popular “Proposition 13” during the referendum in California that year and passed easily. The results spoke for itself.
The Enugu option, should be allowed to take root and establish the freedom that the Electricity Act was suppose to offer. The continued concentration of everything in the Federal Government is the bane in the Nigerian situation. The more we have the Federal Government taking hold of everything, the more strangulated we will remain.
The best option is to get rid of the National Electricity Grid, make it regional and let all the decentralisation envisioned in the new law work as conceived. The hurried amendment to the Bill now sought is an attempt to undermine all the good intentions that the new law offers.
