Why Electricity Consumers Would Pay More Tariff — Amadi

Just days ago, Sam Amadi and other commissioners in the Nigerian Electricity Regulatory Commission (NERC) ended their tenure with the commission. In a live interview monitored by Lucky Vincent, Naij.com’s correspondent, Amadi who served as the chairman of the commission explains why electricity consumers will have to pay more from February 1 as well as why metering customers is very necessary.

Excerpts:

What is the rationale behind the recent increase in electricity tariff in Nigeria?

As you may know, we’ve had extensive consultations with stakeholders, operators about this tariff. So it was expected that it would come and we took time to explain to Nigerians the reasons for this tariff. Basically, there is always the need to make sure that at any time that the tariff being charged for electricity services are in line with the cost profile of the industry as they change.
In January, we froze the residential consumers’ tariff because we expected some increase in gas supply. And we said that the freezing of the residential consumers’ tariff would be reviewed later in the year, it should have happened on June 1st, but because a good government was setting in and it was irresponsible to take such major policy, it was delayed and worked out with stakeholders over time.
So right now, we have a tariff finalised that addresses the commitment of government to improved service, ensure more hours of power supply, ensure metre rule-out, remove fixed charge so that people can only pay for what they consume, and entrench a dispute settlement system that allows customers, who are over-estimated, not to pay that over-estimation but to pay their historic bills. This is a tariff that resets the existing market for higher efficiency and now takes into consideration our need to have more quantities and also create a market where customers can be much more satisfied.

The House of Representatives recently asked NERC to suspend an increase in electricity tariff until its probe into the operations in the sector is concluded. The ad-hoc committee said it had communicated to you on this. What changed?

The simple fact is that we had met before the various House committees and made a case for what we do and I think they were satisfied with the work we do. Don’t forget that the last Assembly made the law, the Electric Power Sector Reform Act, which mandates certain behavior. It gives NERC the power to periodically review tariffs. So we have a methodology that says if x happens, we should do this. So what we’ve done is to carry out a function that the National Assembly asked us to do by law.
As a lawyer, I do know that we would be totally against the law if we don’t do what the law asks us to do. Right now, it is left for the National Assembly to look at the tariff and if they have any question concerning where this tariff sows not protect public interest, they can ask us to explain and I would be very glad to explain. So it is just to save the sector and get the country moving forward.

So is it safe to say the House of Reps has seen reasons why the tariff should be increased?

We made a presentation on how do we make tariffs…it is very clear, we are not giving the operators a rude fall, we are providing a favourable pricing mechanism to encourage investments and we got their resolution (the resolution of the House) a day before we were to issue out the tariff. The tariff was concluded, it was just the announcement.
NERC did not go out to disobey them, NERC simply carried out its work on assumption that this is what the law has mandated and that if there’s any other enquiry, we will provide it. We have always been obedient and compliant about giving information. I think they understand our handicap. We have to go ahead and alllow the market have a breather of fresh air in order to save the sector.

People wonder why you had to wait till the twilight of your administration before announcing the tariff increase instead of announcing it earlier and helping to make it mature before the expiration of your tenure.

I think the answer is simple. You must have a work plan that requires several back and forth. For example, we should have issued this tariff weeks ago, but we discovered that the rate of the increase was higher and that we can benchmark it lower and we needed to get back to the Discos. NERC is a transparent and participatory organisation. So what we do is that when we want to take a decision, we go back to the Discos. It was a week after we invited them that we increased the tariff. We showed them what we wanted to do. We told them “zero fixed charge for all customers. Go back and work it out for us. In fact, we received a final model from the Discos on Friday evening (last week) and on Saturday, we signed off that part. So it wasn’t timed to end without exit.
But close to our exit, all was set and we couldn’t just walk away and throw the market into confusion and say: “if Sam Amadi and his people were not re-appointed, if you appoint new people, let them grapple with the nonsense of going back to undo and understand the system.” Having seen the work two days before we exit, we felt comfortable that we could sign off the tariff because we had finished all consultations with government, with market back and forth; all things had been worked out. So the right thing to do as a leader is to take a decision and that decision is in the interest of the market…don’t forget the NERC simply means the commissioners.
The law says NERC shall be constituted by the commissioners and the commissioners are to make decisions. The commissioners have to make decisions, understand the process. So we felt that this major policy needs to be signed off since we have finished every process. We’ve gone back and forth many times. We could have issued it weeks or a month ago, but we were very painstaking to deal with the impact of the removal of fixed charge, to deal with impact of metre rule-out, to deal with the impact of no billing for customers who have not been metred in 60 days. We worked out all the impacts mathematically, we worked out in terms of policy implications and we felt we have provided the safeguard and on that day, all was done. And then we signed off.

Was there any time you had a court order restraining you from this recent increase?

No, if there was an order, we would not go further; a regulator has to be law abiding. We cannot be reckless and disobey court order.

You were recently quoted as saying distribution companies engage in overbearing and charging of flat rates due to the absence of effective metering system which you said must be addressed in the nearest future. Has that been addressed?

The distribution companies must metre their customers and two things came up from it. One, if you don’t metre your customers, it is at your own risk; because if you bill them and they dispute that bill, they don’t need to pay for that estimated billing anymore, they would pay for the historic bill that they think is certain. If today, I’m billed N200 and I pay and tomorrow they issue me N4,000 and I dispute, I have to go to the NERC dispute system and once I go there, I am not bound to pay (the estimated bill) anymore. When you are disputing, nobody should disconnect you because you are protected to pay what you have been paying historically. In other words, we are pushing back the incentive on the Discos to metre their customers. If you don’t metre, then you run the risk of losing revenue. So we have made the best use of a bad situation. Final word, Discos, go and metre; if you don’t metre, you run the risk of losing revenue.

Has this policy taken effect?

These policies are contained in the Tariff Order, they take effect immediately, but new tariff takes effect from February 1st. We understand the optics and the politics of New Year. We’ve learnt from history and we have decided that this new tariff takes effect from February. People come back from Christmas and end of year parties and are financially drained and are not going to confront a new tariff from day one.