Some legal experts have said some of the assumption that informed the decision on the revised power tariff approved recently by the Nigerian Electricity Regulatory Commission (NERC) for distribution companies (Discos) in the country are unrealistic.
The experts from Detail Commercial Solicitors – a distinct commercial solicitor firm with expertise in non-court practice – explained in a brief on the new Multi Year Tariff Order (MYTO) of the NERC, that assumptions on gas price and foreign exchange rate by the regulatory commission were unrealistic.
The note obtained by THISDAY, explained that despite the new tariff which was yet to become operative, more drastic and holistic approaches would be required from various stakeholders, particularly the Discos, to improve their current financial condition.
They stated that, “The 2016-2018 minor review order had envisaged a migration to a cost-reflective tariff by July 2020. However, following the issuance of the order, cost-reflective tariffs for the Discos are now expected by the end of 2021.
“The impact of this is that Discos will continue to struggle to meet their revenue requirements, minimum remittance and operational costs. Particularly since there’s now increased pressure to meet minimum remittance requirements or face penalties from NERC.”
According to the experts, “Some of the relevant macroeconomic variables (e.g. exchange rate of N309.90 per USD1 and gas price of USD2.50MMBTU) that form the building block for the new tariff are not realistic.
“For instance, it is expected that the Discos will incur some of the capital expenditure allocated to them under the order in procurement of equipment abroad. By so doing, they may be unable to source for foreign exchange at the official rate of N309.90 to USD1. The rate at the parallel market where foreign exchange is more readily available, is N360 to USD1.”
The experts also noted that the review sparked reactions from various stakeholders across the country, adding that, “the Incorporated Trustees of Human Rights Foundation made an ex-parte application at the Federal High Court (the Court) seeking an interim in-junction against the implementation of new electricity tariffs.”
The application, it explained was however, declined by the Court, which ordered parties to maintain status quo pending the hearing of the motion on notice.
The experts indicated that the new tariff was still being challenged and thus faced some legal hurdles.
“It is pertinent to note that the order intends that the change in tariff should become effective by April 2020. This will enable customers to continue making payments based on of the existing chargeable tariffs pending when the status quo is allowed to change by a competent court. However, payment of the existing tariffs by customers may continue if the court rules in favour of the Human Right Foundation.
“Furthermore, the House of Representatives also directed the Ministry of Power and the NERC to suspend plans to increase electricity tariffs until the leadership of the legislative chamber concludes consultations on the matter,” they explained.
Consumer, they stated would also continue to query the tariff review especially on the basis of years of poor service delivery by the Discos.
To this end, they explained that, “issues such as lack of adequate metering of customers and the general inefficiencies associated with the Discos must also be aggressively tackled to improve the financial situation of the NESI,” in addition to the government’s commitment to keep the sector afloat with subsidies.
Source: This Day