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NLC says erratic supply of electricity must be tackled

In a chat with Sunday Isuwa and Linus Aleke, Dr. Peter 0zo-Eson, General Secretary of the NLC calls for for reversal of the privatization of Power Holding Company of Nigeria (PHCN).

Dr Peter Ozo, General Secretary of the Nigeria Labour Congress

What are the major issues that led to the tussles between the National Electricity Regulatory Commission, the Distribution Companies (Discos) and Nigerian Labour Congress (NLC)?

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Well, the picketing of electricity distribution companies across the country which culminated into rally in the Federal Capital Territory (FCT) was aimed at protesting the obnoxious increment in the electricity tariff in Nigeria which of course is now before the National Assembly. The issues are very straight forward, we got to hear of the intolerable increment from the media that the National Electricity Regulatory Commission and the distribution companies (DISCOs) had agreed and announced the new tariff structure over the next ten years.

And for the immediate, the increment represented a jack-up of tariff across the country. Different discos have different rates, but on the average, it came to about 45 per cent increase on the existing tariff. There are cases in which it was as high as 66 per cent and we felt that it was certainly unacceptable on the following grounds: one, the process of review of electricity tariff is guided by law.

The law that established the setting up of National Electricity Regulatory Commission (NERC) as well as privatization law stipulates the process which must involve engagement with stakeholders so that everybody is able to discuss and see the fact before agreeing on what the magnitude of tariff increment would be. In the present case, certainly that was not done, the Nigerian Labour Congress (NLC) representing a quite proportion of the consumers were not consulted and even when we reached out to NERC on our own when we heard of the plan, we were denied that opportunity of fair hearing.

We then wrote the commission requesting that we needed to engage with them but they refused to avail us the opportunity. They claimed that the date we gave was not convenient to them as they had already planned other engagement for that date. We therefore, called on them through formal communication that we are rejecting through our organ, the purported increment, urging them to put it on hold. Of course, they disparaged our position and went ahead and implemented it on the February 1.

That was why on February 8, we held that protest which was more like a warning to signify the anger of Nigerians and consumers generally about the hike. The grouse therefore, was that the appropriate consultation was not made. Secondly, even before the increment, there was already a contestation of the process in the court and a Federal High Court in Lagos had given an order restraining NERC and the Discos from implementing any increase.  They ignored that court order and we insisted that the rule of law should be adhered to.

They cannot just ignore court order, of course we are all aware that the legal process is still ongoing and we are waiting for the final outcome. Basically, those are the two major contestations but there is the third ground which was that the quantum of the increment in the current economic reality is certainly not sustainable, particularly when the majority of consumers are not even metered.

The Memorandum of Understanding (MoU) that the Discos signed when the privatization took place spelt out certain conditions. Top on the list of those conditions was they were given 18 month period within which to meter all consumers. But more than 30 months after that agreement, more than 60 per cent of electricity consumers in Nigeria are still not metered and therefore depend on estimated billing. So when you allow such a massive increase with estimated billing, it is a recipe for just exploiting consumers because even when you have no light at all they will bring bill for you and even escalate these bills.

Consequently, we believe that if any major increment is to take place, they need to first increase supply so that consumers would not be paying to them and also be spending huge sum of money to run generating sets.  They need to make investment to improve power supply. As a matter of fact, they can improve their profitability through volume. If they increase the volume of power that is supplied, the unit cost of production and distribution will fall and the larger the people that they sell to. So we think that that is what they need to do first before increment.

We also believe that in the present circumstance, given that they had not been able to make such investment, it then calls to question the whole privatization process because, what was the privatization made to achieve? It was to bring in investors who are ready to bring in both financial and technical expertise to invest in the sector and therefore through that increase efficiency and make long run profit. But now government and NERC are arguing that in order for them to make investment they need consumers to hike-up what they pay. You are not going to use consumers’ collection today to make and investment.

It then means that the criterion that qualifies those that took over the Discos and GENCOS were violated. This is because they ought to have looked at their capacity to invest certain amount of resources into the sector in addition to their technical input. But unfortunately, those things were not taken into cognizance before giving away these national assets. So we wonder if there should not be a revisit and a review of the whole process which led to the distribution of the national resources to few individual who have no technical knowledge in the area and have no financial muzzle to make the needed investment in the sector.

There are also technical issues as to what is the methodology of actually determining what the tariff should be.  Here, NERC is using a model where they said it is a ‘lost recovery approach.’ This means that if DISCOS got so many kilowatts of power, depending on what it was able to sale or distributes, if there is a gap, then that lost would have to be computed and reused in raising the tariff.

That is a recipe for inefficiency; if a DISCO receives x kilowatts of power and do not invest in infrastructure to properly distribute it and that is wasted and they incurred a lost, why should they force the consumers to pay for that inefficiency? That amount to paying for darkness! And we believe that Nigerians should not be subjected to such kind of situation, these are the issues we are canvassing for.

We had called on government and the National Assembly that the right thing to do is to return to status quo ante, stop the increment and let the process follow the laid down procedure, through proper engagement and looking at the information available and agreeing on what methodology to use and at the end of the day we can then decide going forward what the process should be.

It is really worrisome, that those who had taken over the power sector do not have the technical know-how and financial capability to revive and reposition the sector for better efficiency and steady supply of power, would you as a union push for the revisal of the privatization of the sector?

In the process of the ongoing contestation, we have canvassed for it and in our position paper that we sent to the Joint Committee of Senate and House of Representatives, it is part of what we have prayed for. We posit that based on these incapability of those who have taken over this sector, there is need to revisit the whole process of the privatization so that the country can be on the strong footing in trying to solve the power problem.

Why is government not exploring other sources of power generation like solar, nuclear and wind?

Well, when you have people who are using private ownership system and investment to try to provide power, then, you are going to do a cost analysis as to which cost is cheaper for them to use whether it is though a gas turbine, hydro, wind or solar. Of course we know that renewable energy is now more en-vogue and emphasis across countries is tilted towards solar and wind but in terms of cost effectiveness as of today, those are still generally higher cost sources.

Going forward however, it is expected that those prices may fall and I think that government has a role to play here. Take solar panel for instance; they are not produced in this country, so government has to encourage investment in the production of solar panel or wind turbine etc.  But even while we are not yet producing them, government can use fiscal measures to try to promote the use of the energy of the future. For example, solar panel are dutied in Nigeria, in a number of countries, solar panels are duty free, in order to encourage people to patronize the product.

So I think we need to think through the whole energy mix policy both in the static and in a dynamic sense, dynamic in terms of where do we want to be in the future with the push for green economy,  renewable energy and all of that. What steps do we need to take today in order to make sure that in the future we would reap the full benefit of such moving away from fossil fuel and the likes? I think that government needs to revisit that whole policy mix and then use policies to try to promote those others.

As of today, I do not know of the major Electricity Generation Companies (Gencos) in the country that had moved into either solar or wind. They are still using gas and water driven system. But with time, particularly for rural areas where the main grid is not readily available, government can encourage solar and wind system that will service smaller communities. This is where I feel state government need to start playing dynamic role in trying to do this in order to promote energy coverage across the country.

Do you suspect any form of compromise on the part of NERC against the interest of consumers in the country?

Well, I have no evidence to that effect but what I do know which I have said to the hearing of NERC officials is that in the economics of regulations; one thing that is usually emphasized is the need to avoid ‘regulatory capture.’ Regulatory capture occurs where a regulatory agency takes undue side with the opposing side may be as a result of sympathy or certain argument aimed at eliciting the agency’s support for or against the issue at stake. Capture may also occur through compromise. But we hope that such had not taken place, meanwhile I do not have evidence to begin to make such allegation. But again what we can say is that NERC is not protecting the interest of electricity consumers they are constitutionally established to protect against undue exploitation of the monopoly in the sector.

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