Myto: Subsidising Electricity

A further step in the government’s efforts to reform the electricity sector and improve the poor state of electricity supply in Nigeria took place on Wednesday, April 30, with the approval of Multi Year Tariff Order (MYTO) by the Federal Executive Council. The MYTO, which will come into effect on July 1st 2008, gives the tariff trends for all categories of electricity users for the next 15 years. Major reviews of the tariffs will be effected every five years, while minor adjustments will be made annually to take care of changes in costs outside the operators’ control, such as gas prices and inflation rate. The MYTO is expected to provide predictability and some stability for the electricity market and allow market operators to be able to make long-term economic and investment decisions.

LOW electricity price has often been fingered as one of the major constraints to adequate funding of the electricity sector. Tariff charges, it is claimed, have not moved in tandem with increases in the general price level, leaving the electricity utility provider with high financing gap. The last tariff review in the sector took place in 2002. However, while current electricity pricing at approximately five cents per kWh — one of the lowest in the sub-region— is identified as perhaps the major problem, which needs to be revised upwards to guarantee fair and adequate returns to investors, there are other major problems bedevilling the operations of the sector, which, experts believe, should also be addressed.

RECENT revelations from the power probe panel have shown the depth of fraud, corruption and mismanagement pervading the power sector. Generation costs in Nigeria for new power plants are among the highest in the world. Moreover, the costs build up that went into the computation of the MYTO are still quite high by any comparative standards. Though the reason given for embarking on MYTO by Nigerian Electricity Regulatory Commission (NERC) officials was the need to provide incentives for investors to come into the power sector, it is still, in our view, a lazy way of dealing with the problem in the sector and making the hapless consumers to pay for the obvious inefficiencies in the system.

TRANSMISSION and Distribution (T&D) losses in the power sector were estimated at 37 per cent in 2005. This implies that for every 100kWh of electricity supplied by the Power Holding Company of Nigeria (PHCN), only 63kWh is delivered to consumers and paid for. The T&D losses are extremely high when compared with the internationally acceptable standard of five per cent. Current estimates by experts show that if PHCN were able to minimise these losses and bring them down to international standard, the current tariff rate is sufficient to guarantee a respectable return to power sector investors, given the low cost of gas in Nigeria.

IN the past, Nigeria had also signed ridiculous power purchase agreement (PPA) with independent power producers (IPPs). The terms of those PPAs have placed the country at a disadvantage, especially in the area of independent power projects. Power Purchase Agreement is an agreement signed between the power producers, usually the IPPs, and the buyer, PHCN. One of the most ridiculous agreements was signed with an IPP in Lagos. By the terms of the contract, the government is to provide gas for the IPP to fire its turbines. However, anytime, there are disruptions in gas supply and the IPP could not fire its turbines, PHCN is still made to pay a full amount as if the IPP is producing. According to

PHCN sources, while the IPP produces less than 25 per cent of electricity consumed in the country, it collects about 75 per cent of total revenue generated by PHCN for services not rendered! This is unacceptable and there is no reason why those who signed such a contract should not be penalised.

WE are pleased that the MYTO will not immediately lead to increase in tariffs paid by the consumers. The Federal Government has approved the creation of a MYTO Support Fund to take care of the differences between the current electricity tariff rate of N6 per kWh and the cost plus returns rate of N11 per kWh in the MYTO. The implied subsidy that government will have to underwrite to the producers between July 1, 2008 and 2011 is estimated at N177billion. This budget support constitutes, either directly or indirectly, a transfer from the Nigerian public to the electricity supplier. Therefore, there is a need for a strong monitoring of the sector to ensure “value for money”. Standard of performance should be imposed on the sector operatives and monitored. Sanctions should also be put in place for non-compliance. The sad lessons learnt from the activities of Global system of Mobile Telecommunications (GSM) service providers, whereby high tariffs coexist with poor performance, should be avoided in the design of policy for the electricity sector.

THE NERC should be wary of the problem associated with “regulator’s capture”, or a situation whereby the regulator is held captive by the operators, which, it was alleged, is the case with the Nigerian Communication Commission (NCC) in the telecommunications sector. With regulator capture, the electricity firms become uncontrollable to the sector regulator. The NERC must demonstrate its neutrality and firmness in dealing with all stakeholders. All stakeholders should also be involved directly when electricity producers make case for tariff reviews. NERC must prevent such unwholesome practices like gold-plating of costs, inefficiencies and cartel arrangements among power producers.

APART from generations, however, adequate investments are also needed in the other segments of the electricity supply chains — transmission and distribution. It is only then that the benefits of current reforms in the sector will be fully realised. Other issues needing attention of government in reforming the electricity sector are for it to ensure strictly that gas is available and is supplied to existing and future power plants, as well as ensuring rapid expansion of gas infrastructure across the country. The challenge of meeting the over 50000MW requirements to meet the Vision 2020 goal of the government remains a major challenge to the Yar’Adua administration.

amodu’s volte-face on the eagles’ job

WHAT could have made the coach of the Super Eagles of Nigeria, Shaibu Amodu, to change his mind about his country’s football team? Could it be the smell of the position or the super authority that goes with it? Could the jumbo salary be the main attraction that forced the Edo-born Amodu to change gear and swallow his own vomit?

AMODU on many occasions in the past had expressed his distaste for the Eagles’ job, especially after being unceremoniously eased out of the position. In an interview he granted hotsportslive.com, an internet-based sports organisation, in 2005, Amodu had vowed never to take up the position of a coach with the national team, saying it was no longer attractive. He said he had done his part in the development of football in the country and was no longer interested in the job. But it appears the former coach of Sharks FC of Port Harcourt has forgotten those statements and even the vow. Today, he is the coach of the Super Eagles and will be assisted by Daniel Amokachi, Fatai Amoo and Alloy Agu.

RIDE on coach. You do not need to explain to Nigerians why you took up the job; they are very perceptive; they know. You heeded a patriotic call to rescue the sinking boat of Nigerian football. And who else would have done the job better, if not a Nigerian with a robust and successful career, especially one with such an “unblemished” international record as a club coach in South Africa?

AMODU should not be blamed for reversing himself on the Eagles’ coaching job. It is not a new thing for one to reverse one’s decision, especially one made in the heat of the moment. Even the government has made it a point of duty to reverse itself. And curiously, reversal could be a strategic policy, especially when it is self-serving. Besides, the position of Super Eagles’ coach has become one of the most lucrative jobs in Nigeria, with the coach earning a fat payoff should he fail abysmally in his duty. So, who would blame Amodu for taking such a “loser takes all” opportunity?