NERC May Shelve Proposed Tariff Hike Due to Recession, Discos’ Lawsuit

The Nigerian Electricity Regulatory Commission (NERC) may not implement its planned increase in tariff for the 11 electricity distribution companies (Discos), THISDAY has learnt.

The decision to backtrack on its move is predicated on country’s current economic recession and the ruling from the suit at the two Federal High Courts (FHC) in Abuja instituted by eight Discos, stopping it from enforcing discipline in their revenue remittances to the market.

Akah said the proposal has been submitted to the Federal Government for consideration, and that the government will adopt a suitable policy position with stakeholders to keep the market stable, and consumers from rate shocks that may come from a fresh tariff.In an exclusive interview with THISDAY at the weekend, the acting Chairman of NERC, Dr. Anthony Akah, disclosed that instead of a new tariff for the Discos, an alternative proposal to bridge possible market revenue gaps that might occur from the commission’s eventual decision on its tariff review might be adopted.

Though the NERC is statutorily mandated by the Electric Power Sector Reform Act (EPSRA) 2005, to periodically review and introduce cost reflective rates putting into considerations several indices, Akah, however, stated that it was presently constrained from announcing a new rate majorly for these two reasons.
He said while the Discos lawsuit had contributed to the market’s financial challenges as they (Discos) consistently fall short of their remittance demands, the commission was opposed to rewarding them with a new tariff especially at a time they had underperformed and Nigerians were squeezed by the country’s recessed economy.

The Senate has also expressed its opposition to a tariff hike, as well as financial subsidy for the sector.
Akah, however, said that, “By contract, which the MYTO (Multi Year Tariff Order) represents, we are bound as a regulator to give the sector a tariff and undertake minor reviews as well, but there are some factors we are concerned about. One of them is that the distribution companies went to court to get a restraining order that has inhibited the checks and balances process we put in the market to ensure high level of operational discipline, high level of revenue remittances and also give confidence to all the players in the value chain.

“Presently, you cannot escrow the accounts of these distribution companies if they fail to remit monies they collected, and a review of their remittance level is very poor and does not align with their high level collections. As far as we are concerned, the distribution companies are retaining far more than they should to the detriment of the transmission companies and generating companies. This is grossly unacceptable to the regulator and we believe that the court order which we are challenging may have contributed to this.”
According to him, “For now, we are very averse to increasing tariff, we are concerned with the economic recession in the country, and imposing additional tariff on Nigerians, as well as that we need to be sure that the distribution companies and others have improved or delivered on the low hanging fruits to Nigerians on the tariffs they have got before.

“We do recognise that we must also find a way to find a gap between what is a realistic tariff and what it is today and to that extent, we have submitted proposals to the government on its considerations to come in with a bond, subsidy or some kind of financial relief that would not be free money but soft loan or financial relief.”
“We believe tariff increase on its own will not necessarily lead to improvements in power. However, a tariff increase that is matched with clear performance indices with a robust regulatory monitoring would lead to the kind of power that we are looking for in this country. We are not subscribing to heavy tariff on Nigerians; we will rather prefer to look for other options that will take care of the gap in the tariff for today and what it ought to be due to changes in the economic indices,” he added.

He said in the context of its proposal to the government for a comprehensive solution to the sector’s challenges that it would wait for a response, and that, “in the absence of that comprehensive document coming out, we will not be able to make any announcements at this point.”

“We want to have a comprehensive solution to this issue, for now, we don’t want to allow any free money to any Disco or any of them taking advantage of electricity consumers, that is where we stand for now,” Akah noted
In June 2016, through suits No. FHC/ABJ/CS/387/2016 and FHC/ABJ/CS/386/2016 of the two Abuja FHC, eight Discos got restraining orders to stop the NERC from implementing its directive for the Central Bank of Nigeria (CBN) to escrow the accounts of Discos who cannot meet their monthly payment obligations to the Nigeria Bulk Electricity Trading Plc (NBET).

NERC and other connected persons were also restrained from compelling the Discos from entering into Promissory Note arrangement with NBET, as well as from calling on their Letters of Credit (LC) with NBET through certain commercial banks, pending the hearing and determination of the Motion on Notice.
The Discos alleged that, despite the cash flow problems they faced as a result of allegations of NERC’s bad management of the power sector, the regulatory agency had vide a directive with reference No. NERC/MC &R/16/098 of March 30, 2016, directed the CBN to escrow the accounts of Discos who cannot meet their monthly payment obligations under the vesting contracts and who are yet to place their LCs with NBET in accordance with the escrow directive.