Abdullahi Ramat, chairman/CEO, Nigerian Electricity Regulatory Commission
I recently read an illuminating interview with one Mr Omofoman, an energy expert, conducted by Rotus Odirri of Arise News.
The crux of the interview was that what Enugu State regulators have done is what was envisaged in the new electricity law; and that uniform tariff throughout the country can not be correct, because different entities have different cost structures.
It got me thinking about Nigeria’s electricity markets and the impediments that I see as slowing its development. The newly passed Electricity Act signed into law in 2024, is probably the most significant push to remove the shackles that have slowed Nigeria’s electricity development by decentralising the system and allowing more energy options, more players, and state regulation. But the interpretation and implementation are threatening to take away what the law gave with the right hand, but is now being taken away with the left hand.
The Enugu State Electricity Regulatory Commission’s option
The controversy over Enugu Electricity Regulatory Commission’s decision to lower the electricity rate charged in Enugu State by the electricity distribution company in its jurisdiction is a case in point. The reasoning that electricity distribution companies can charge the same rates across all states in Nigeria is a myth – BAND A rate of N209 per kw/h for instance throughout Nigeria – in Lagos,Yobe and Edo – cannot be right, because the cost structure in every state cannot be the same.
But the Enugu State decision must be seen for what it is – freedom for each state to take control of developing its electricity market according to its own dictates.
What the Enugu State Regulatory Commission has done is to take a community approach. If all the electricity available for distribution in Enugu is 16 hours, then let every consumer get the 16 hours equally and those who can subsidise with diesel power, can do so, and others who cannot, should manage the 16 hours and let everyone pay the appropriate price for 16 hours electricity – say, the N63 charged for Band B that guarantees 16 hours.
It could be higher in some states, like Lagos, because of the higher cost structure in Lagos. But the distribution companies’ arbitrary rate charge is unacceptable. The national regulator – 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 hours guaranteed to Band A, is not being delivered. Though they collect higher revenues, nothing has really changed. Now they use the failing national grid as the new excuse why they cannot deliver on the service they are charging more money for. They have even created problems for those caught in their Band A zoning who cannot pay those rates. It is not everyone who lives in Ikoyi, for instance, who can pay N209 for the Band A charges arbitrarily imposed.
The National Electricity Regulatory Commission must interpret its role as regulating and not controlling. Regulating means providing licensing guidelines, ensuring technical standards, and protecting consumers from exploitation. Ensuring consumers are not overcharged is not the same as controlling prices, because prices are a function of the market. Once the regulator starts to set price, or approve price, 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 and sell less if the price is too high. In the case of electricity in Nigeria, the problem is shortage of electricity and the providers will want to sell at the price they can get away with. That is exactly what they have done with the BAND system. It is the same product, with no differentiation, it is the same everywhere, this discriminatory pricing does not make sense. The national regulator must be provided with all the technical details to allow it to provide guidance, without prescribing prices. Its role 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 the distribution of inefficiencies. The current pricing is coming from no real investment by the distribution companies and therefore no efficiency has been achieved, even after 10 years of privatisation.
The power generation companies ( GENECOs ) are producing increased power for the failed National Grid, which it cannot distribute and therefore no relief for consumers. They have the federal government as their back stop, in the name of paying subsidies, for collecting their payments, which they can not get from the distribution companies, who have refused to meter electricity users, and therefore can also not collect payments fully from electricity users. The GENCOS claim the federal government owes them N5 trillion. This is the win-win business model they have created – generate power, send to the National Grid that can not distribute the power they sell, then rely on the federal government to pay what they can not collect from the DiSCoS.
If they manufacture any other product, where they cannot get paid, will they continue to produce that product? So, the question is, if the federal government says it will not pay any more subsidy, the GENCOS will have to change their business model, because they cannot continue to generate what is not consumed. GENECOs must find a way to co-operate with states in their area of coverage to build regional grids as 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 can come from consumers. If DSTV can connect and bill consumers everywhere, and can cut them off when they fail to pay their subscription at the end of the month, electricity 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 to take in more money, without providing any improvement in the service. In fact, what they have cleverly done, is to take the extra 12 hrs and 8 hrs from Bands C and B, give to Band A the extra hours, to provide 20 hours, which they have not even been able to guarantee, and collect the diesel money from those who can afford to buy diesel.
In other words, they are claiming the first right on diesel expenses of the elite who can pay, as increased charges, to get extra hours of light, which they get from the poor who cannot afford to buy diesel. So, this is essentially movement, without any extra improvements to the overall electricity situation.
What Enugu State has done, is an attempt to make electricity rates lower for everyone and also extend the available electricity supply to all, at affordable rates. This community approach, allows electricity users in Enugu State to share the available electricity at affordable price for everyone.
The Enugu State option is not new in economics. Just before the Reagan administration in the US, a professor Arthur Laffer popularised a concept to lower taxes in California, to expand the tax base, so more people can pay a lower rate, and make it more inclusive. If rates were reasonably low, more people would have no need to evade tax payments, more people would pay and tax revenues would actually go up. This was how the famous Laffer curve came into Economics – if you lower the rate and it flattens out and brings in more tax payers and more money into the system; the cost of enforcing compliance also comes down. It was proposed as a referendum in California that year, as “proposition 13”, which passed easily. The results spoke for itself.
The Enugu option should be allowed to take root and establish the freedom that the electricity law was supposed to bring. The continued concentration of everything in the federal government is the bane in the Nigeria situation. The more we have the federal government taking hold of everything, the more strangulated we will remain.
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 what the good intentions of the new law will bring.
- business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com
Victor Ogiemwonyi, a retired investment banker, is a former Governing Council member of the Nigerian Stock Exchange (NSE), now Nigerian Exchange Group (NGX Group). He sent this contribution from Ikoyi, Lagos. He can be reached via comment@businessamlive.com and marketconversations.substack.com
