Nigerians to pay more for less power supply – Amadi

A former Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr Sam Amadi, said the proposed tariff increment in the electricity consumption in Nigeria will force citizens to pay more for less power supply, in this interview with African Independent Television AIT breakfast show KAKAAKI monitored by Linus Aleke, in Abuja

Are you worried about the planned tariff increment in the electricity sector?

I was a bit worried because of all the changes and price increases in petroleum, and other household items, including inflation. I was worried but again I know that I was not deeply worried. I was rather surprised, once the federal government floats the currency before there could be a change increase in forex, the forex exchange changed dramatically. I know that we are going to get to a point where this will happen. But again, the level of increase is worrisome in terms of the impact, I am a consumer, so I worry for myself and many Nigerians who are going to pay more for the same quantity or less. You know, the problem with this increase is that we are going to pay more for the same or less. Why so, because this is a change that is caused by microeconomics not a change caused by an increase in quantity or by any upheaval. This is just because inflation has changed, and foreign exchange has changed and therefore, if dollar-based cost for example is x and now it is x.2, you know that the price you are charging is going to move up by x.2 to get the same level of profit. It is tough, and the implication is that the consumer is going to pay more for less or the same thing, most likely and power is an essential commodity. So, if we look at the increase in power and the hike, there will be no substitute. It is not a case where people say, let them try to use the generator, fuel price has also gone up, it is not a case where people will say try darkness. It is their stock, but why is it justified? In a way, the discos and the regulators will say, when they do tariffs, it is minor reviews that occur twice a month. This is June, that is January to June, then July to the end of the year. How that works, there are four things that they are looking for, one of which, is inflation, because Inflation lowers the value of money. If you have N200 when inflation was 8 percent, the same N200 will purchase less when inflation is 22 percent. The second thing you are looking for is foreign exchange because most of the items used in the power sector are purchased in dollars and accounted for in dollars, the use of dollars allows them to be protected from the high volatility of the dollar. If you make purchases when the dollar was exchanged at N200, and you are giving an account when a dollar is exchanged at N750, what that means is that you are going to use dollars to pay a debt that is totally in dollars. Another thing is the cost of gas, gas is the main source of our power, and therefore, if gas has gone up, it is a problem. Raw materials constitute about 30 per cent of the total cost of the production. For consumers, it means that you are going to pay more without improvement. This is not a new tariff that says because we are making two hundred billion more investment, we would give you power for seven to 14 hours and those who are on 14 hours to 19 hours. We are going to charge you more because we are making new investments. This is not an increase that says because we are going to stabilize power, we want to invest more money to upgrade your transformers and to ensure that those who don’t have meters get meters, all these costs have to be borne by consumers. But this is a change that is simply saying, things have changed especially with Tinubu floating the currency, we might at some point see Nigerian currency exchange for close to N800 or something of that nature. If that happens, then we are going to spend more for less, so that is what this is all about. It is a stark reality, it shows the inefficiency of the sector. The reason why some had proposed for de-dollarization of the sector is to price everything in naira so that even if we borrow money in dollars, or acquire capital and assets in dollars, here we recover it in naira. This means, if at the time that that asset is acquired in naira, if the dollar changes, the naira will save us the forex volatility. What that means is that the supplier of that service is the one who bears the loss that is triggered by forex volatility, and that is why people say that even the African richest man Dangote is no longer the African richest man by the simple magic of the shift in the forest market. Those who have access in naira have less value and those who have access in dollars have more value. Those applauding the floating of the naira should know that there is going to be a spike in the cost of energy and other goods and services.

As the former Chairman of NERC, is it true that there are regulatory lapses hence the arbitrary increase of tariffs by distribution companies?

I think I will like to state the truth even though I have to respect collegiality. I think that there are some gaps in regulating the market tricky as the electricity sector market, even in the developed economies of the world. And in Nigeria more so because of certain factors, one is inadequate knowledge and skills to regulate the sector. The discos seem to have more capacity than the regulator. Two, the regulator is not as independent as it ought to be. Maybe we are a little more proactive and independent than our successors due to the political economy. Thirdly, the objective of the regulation, often time, the regulator feels that this is the market that needs to be nurtured. Be that as it may, the regulators should do more by doing oversight on the distribution companies. I think that as part of changes in this industry, we should outsource a centralised customer line of regulation to state regulators. When I was the Chairman, I was compelled to open zonal offices across the federation to help us deal with the retail-level impact of our regulation. Today, those zonal offices have been closed and no longer in use. But I was convinced that we cannot sit in Abuja and regulate what customers in Nsukka or Ekiti or Owerri are experiencing. We need to have state consumer protection regulators. I will give an example, the AEDC will tell you that if your band is x you will get this hour of supply of electricity in a day, but you pay the increased tariff and you are getting less supply of electricity.

So, how will NERC coordinate to punish these DisCos who are deliberately under-serving customers?

In any industry where there is a regulator, the most difficult thing is to regulate the behaviour of profit-oriented enterprises. If any company has served you less, or more without penalty or sanctions, both because customers will rebel and shift to other products, if that did not happen, that business will choke you and underserve you. That is what we learn from economics, capitalists go to the lowest point to make a profit and that is why we have regulation. If Abuja Disco promises all the customers that it will upgrade them to a higher bandwidth for them to have four more hours of power every day and for that they are going to pay an additional N5 per hour, well that is good. But if they under deliver the amount of power promised per person who has the metrics, who will address the imbalance, everybody will come to NERC. But will NERC be able to evaluate this claim at the lower level? The regulator needs to punish wrongdoing severely to encourage self-regulation by other industry players.