Newspaper and several online reports yesterday carried headlines that electricity tariffs were cut by a whopping 50%. This claim was based on a directive issued by the National Electricity Regulatory Commission, NERC.
What the media failed to realise, is that the body of the NERC release made no reference to how much the new tariff was after its was supposedly cut. To understand how they got it wrong, one will have to look at the press released issued by NERC. Of particular reference is the paragraph that mentioned “50%”.
The Commission has been listening to consumers and taking full account off the impact of high tariff on consumers and the Nigerian economy, has therefore reviewed the basis of the MYTO 2.1 assumptions and has determined that it is inappropriate to transfer to consumers collection losses that are controllable by DISCOs. It is the responsibility of the DISCOs to collect their revenue from their customers. Failure to do so should not be a penalty to customers who pay their bills. It is clear that removing the collection losses will lead to lower tariffs for consumers. The removal of collection losses from customer tariff has reduced tariff by more than 50 percent in some places. Please note that the reduction does not affect the CBN facility and its repayment.
Now check the part that was highlighted again. The commission basically gave an example of how removal of collection losses can reduce tariff by more than 50% “in some places”. This is by no means a confirmation that electricity has suddenly been reduced to 50%.
What the NERC DG was trying to say (which he didn’t explain well) was that assumption for calculating Aggregate Technical, Commercial and Collection losses ( ATC&C losses) is over blown by some Discos. ATC&C losses are basically targets that Discos are allowed to include in their assumptions when computing tariffs. They arise because electricity is a product that does not have storage ability unlike most inventories (like cars, books etc.), and as such when generated some of the energy gets lost through evacuation from the ‘Gencos’ to transmission by the ‘Transico’ and then some through distribution lines (wires and transformers) by the discos. They also must be consumed when generated unlike cars which you can keep and use whenever you wish.
Whilst ATC&C losses are understandable and allowed, the ones that are due to a discos inefficiencies are not allowed to be passed on to consumers. The higher the ATC&C losses allowed to Discos the more it leaves room for manipulation by some inefficient discos making them load those losses via tariffs which customers end up paying . This is basically why NERC said some removal of collection losses (a subset of ATC&C losses which refers to discos inability to collect billed revenues) reduces tariffs by 50% in some cases. It doesn’t mean tariffs will be unilaterally reduced by 50%!!!
Whilst most newspapers got it wrong, NERC has a share of the blame too as it gave out a press release without a definite figure of reduction or what the new tariff now is. This is why most believe the press release was rushed in a bid to score another campaign point for the President.