COVID 19 Pandemic Impacts Full Revenue Recovery Plans As Order On The Transition To Cost Reflective Tariffs In The Nigerian Electricity Supply Industry Is Issued

Energy & Natural Resources

April 2020

 

Peter Olaoye Olalere[i]

                                                                                                                                                                                                                                               

  1. Introduction

The Nigerian Electricity Regulatory Commission (“NERC” or “the Commission”) had planned by its December 2019 Minor Review of Multi-Year Tariff Order of 2015 and Minimum Remittance Order for the year 2020 to sanction minor review of the electricity tariff to commence by 1st April 2020. The Discos in particular, amongst other value chain stakeholders (except the consumers of course) eagerly waited for the set date to kick in so that their revenue recovery could, at least, be enhanced. Then the Covid 19 disease, which originated in Wuhan in China but has been upgraded to a pandemic level by the World Health Organization (“WHO”), came into the equation. As aptly captured in a poem by a scholar, Covid 19 came with ‘headache, sneeze, cough, fever, weakness and death like the crown upon the shadow of death’. It has traversed the globe and finally arrived Nigeria on 27 February 2020. It has affected, in one way or the other, almost everyone and almost every sector globally, and it is thus quite expected that the Commission has responded to its effect in the Nigerian Electricity supply Industry (“NESI”) by Order on the Transition to Cost Reflective Tariffs in the Nigerian Electricity Supply Industry: Order No: NERC/198/2020 effectively postponing the take-off date of the minor review of electricity tariff to 30 June 2020.

  1. Background and Context of the Order.

Order No: NERC/198/2020 which is effective 1st April 2020 is an interim regulatory instrument which is expected to lapse, as per its section 2, when a new order is issued on the same subject matter by the NERC – and this is expected to be before or by 30 June 2020, all things being equal.

Before setting the April 1st 2020 date, the Discos had submitted their Performance Improvement Plans (“PIP”) to the NERC in line with the requirement of the Power Sector Recovery programs approved by the Federal Government of Nigeria (“PSRP”) in which a case has been made for improvement in service delivery and the increase in tariff as part of what is considered a pathway to the financial sustainability. These are stated in sections 3 to 5 of the Order. Pursuant to the relevant regulations and sections of the Electric Power Sector Reform (“EPSR”) Act empowering it in that regard, the Commission also held public hearing wherein the other stakeholders in the industry (including the consumers, the Generation Companies (“Gencos”), and the Transmission Company of Nigeria Plc (“TCN”) were able to present their views and positions. These are stated in sections 6 to 9 of the Order.

Sections 10 (a-g) of the new Order highlights the summary of the findings from the public hearings – the salient ones informing the new Order includes:

  • End-use customers are willing to pay appropriate rates for service rendered by the Discos upon the condition of improved guaranteed hours of service, quality of service, and adequate metering;
  • There is still a wide metering gap in the industry, currently put at 60%. This is a major impediment to increase in tariff;
  • Impact of Covid 19 pandemic on the global economy, on the Meter Asset Provider (“MAP”) programme and metering generally, on an average Nigerian; and the need for the Discos to invest in feeders, transformers, and protection equipment; the TCN to invest in resolving transmission/distribution interface bottlenecks and reduce incidences of tripping on the 132/33kv sub-stations while reaching a firm agreement with Discos with key performance indicators and financial remedies for non-performance on either side.

3. Contents of Order No/NERC/198/2020

Having considered the above findings, NERC by the Order No/NERC/198/2020 thus, decided that Order No. NERC/GL/184/2019 TO NERC/GL/184/2019 titled “THE DECEMBER 2019 MINOR REVIEW OF MUTLTI-YEAR TARIFF ORDER (MYTO) 2015 AND MINIMUM REMITTANCE ORDER FOR THE YEAR 2020 shall remain in force until 30 June 2020 when a new Minor Review Order shall be issued by the Commission.

In consequence of this and to put it beyond doubt, paragraph B of the order specifically provides that “THERE SHALL BE NO INCREASE IN TARIFFS OF END-USE CUSTOMERS ON 1 APRIL 2020”. The Commission has further to this, in paragraphs C and D directed that the Discos shall now submit to NERC not later than 21, April 2020, a detailed plan for attainment of full recovery of prudent costs and allowed return on capital by 30 June 2020 and new revised PIP based on key objective of improvement in service for end-use customers and transiting to full financial recovery. Paragraph E clearly states that all these, along with consultations between the Discos and customer clusters, with firm commitment on rates and quality service shall form part of the criteria for future tariff reviews.

Paragraphs F and G are devoted to provisions requiring the Discos to disaggregate their customers into respective areas in accordance with quality of services delivery with a proposal for “service reflective tariff”; and provision of smart meters at 11kv and 33kv feeders level with capacity to send real time or near real time data to the commission by 30 June 2020. The last two paragraphs H and I provide that Federal Government will continue to provide tariff support to the Discos during the transitional period to full revenue recovery ending on June 30, 2021 based on the under recovery of the revenue requirement determined by the Commission but only under the context of the funding available under the PSRP Financing Plan. The paragraphs provide further that the Federal Government remains committed to resolving the encumbrances on the financial records of all Discos arising from tariff-related deficits as represented by payables to the Nigerian Bulk Electricity Trading Plc and the Market Operator.

  1. Conclusion

Although not mentioned directly in the Order, the impact of Covid 19 on the Nigerian Government’s revenue derivable from the sales of crude oil which global price has now nosedived steadily is real both on the Nigerian economy and its citizenry. Combined with the economic lockdown that the pandemic has occasioned the need to free the end-use customers of electricity in Nigeria of any increase in tariff, however minor and at least in the meanwhile, becomes imperative. Added to this are lack of significant improvement in service delivery and metering of customers. The shifting in the date when the minor review will take off is obviously appropriate. While waiting for the new date for the minor review to take effect and for the industry to return to the timetable on full revenue recovery, the Gencos, TCN, Market Operator and most importantly, the Discos need to continue to improve on all their service indices.

[i] Peter Olaoye Olalere, Senior Associate Counsel with the Dispute Resolution Department SPA Ajibade & Co., Lagos, Nigeria.

 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

 

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