What’s NERC’s parameter for tariff increase? – Dr. Ogali

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OilandPower South-Sudan  2020

“No one pulls the cart before the horse”, therefore, “No one”, says Dr. Sam Amadi, former Chairman of the Nigerian Electricity Regulatory Commission, NERC, “effectively regulates a system that is inadequate. And one cannot create efficient market without products. The Nigerian power sector therefore is inefficient because it lacks capacity. Build capacity before regulation, and privatize when there is sufficiency, thereby creating conditions for effective and efficient regulation, but here the reverse is the case. It therefore should not be expected, based on this premise, that NERC should effectively regulate a sector that has no capacity, this is my point.”

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In a brief discussion with the publisher of Energy Window International about the problems of the Nigerian power sector and the relevance of NERC, Dr. Sam Amadi in his characteristic urbanity stated that there was a disconnect from inception, disconnect he had referred to as “limiting factors” which he also explained to mean the politically-motivated step of citing most of the power stations away from the source of gas, or points from where gas could easily be accessible. Other limitations he outlined to include government’s failure to create conditions that enhance smooth and effective operation, a political economy that lacks effective and strategic modus operandi, and exacerbated by quests for ethnic balancing.

He stated that stronger governance and regulation are essential to managing the inefficiency resulting from the chain link theory that defines the industry worldwide, “for Nigeria is not peculiar except the manner of thought and the lackadaisical attitude of those who manage the governance affairs.”

According to him, the chain link theory presupposes that any repair or improvement on one link must also be effected in the other, weak perhaps, for under no circumstance should a weak link be left in isolation or unattended to, from generation and distribution through to transmission. “But I have not seen any innovative, strategic departure, a rethinking the model sort of” says Dr. Amadi, “to bring about positive change.”

Also for Dr. Joy Ogali, Executive Secretary, Generation Companies Association of Nigeria, GENCOS, the Nigerian power sector is bedeviled by inefficiencies, poor governance and abysmal lack in implementing the already existing policy framework which was long confirmed to be comprehensive and holistic. Maintaining that privatization was never a wasted effort because, according to her, it brought about enlightenment and capacity development. Adding that the whole argument about whether tariff review or tariff increase still owes so much to the nagging problem of inefficiency and other criminal tendencies. She also argued that NERC as a regulatory body does not have any parameter to determine tariff increase. “Which assumption was used in determining tariff increase?” she queried. Expressing concern that transmission and distribution companies are still pushing blames on whose fault electricity generated by the Gencos was not able to get to the end users. She was arguing on a local TV programme.

For an authority in NERC one time admitted that the Nigerian electricity Market has not been able to move beyond the transition stage, a situation which he said had unavoidably left a huge task of finding a way out of the power sector dilemma in the hands of a commission whose duty of effective regulation only lies in the adequacy and availability of the products and services for which course it was established.

Going by its name he said, the transition electricity market was expected to have moved the country to contract based electricity market where operators ought to have engaged one another on contractual basis, a stage where generation companies relate with the distribution companies on the basis of power purchase agreement. This unfortunately has not happened because the act of keeping the Gencos at arm’s length while deciding the new tariff regime, for Dr. Joy Ogadi was circumvention and demonstrates obvious inefficiency.

“The implication of this is that every segment of the market is bleeding and gasping for breath. It requires regulatory dexterity. The Commission could do better than it is doing but it is definitely making some efforts which are too technical and do not need to belabour the electricity customers with this”, says the authority at NERC.

As to whether the commission is as independent as it should be to enable prompt action towards changing the narrative, the source has this to say: “The Nigerian Electricity Regulatory Commission is the regulator for the value chain in the Nigerian Electricity Supply Industry, and an independent regulatory agency.”

“In a regulated utility market, especially the one with natural monopoly like electricity, the regulator is the competition. It is there in the interest of both the operator and the consuming public. In essence, regulatory activity is a balancing act. You must regulate to keep the operators in business so that the service is always available for the customers, who you must also protect from profiteering.”

“What emerges in such situation is that the regulator is rarely liked by either of the parties. The regulator is loathed by the customers and hated by the operators each of them willing it danced to their tune. The scenario becomes more pronounced in situation like ours when the product is largely inadequate.”

According to him, the law establishing the commission recognizes its independence, thus one reason why the commissioners enjoy tenure of office. Adding however that a regulator must be politically sensitive as long as decisions of the commission are not influenced by the operators except through process of public consultations which he said should be the rule even internationally. Thus, other than the known instance of political interference when the commissioners were sacked by the Federal Government without recourse to the enabling act, actions and pronouncements of the Commission are also largely independent of government influence, he said.

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