New Telegraph

Subsidy removal and electricity burden on Nigerians 

 

About five months ago, Vice President Yemi Osinbajo revealed that most of the subsidy payments in the electricity sector estimated at N30 billion monthly, would come to an end by 2022. Regina Otokpa looks at experts’ view on how to reduce the expected effects on electricity consumers.

 

 

The Federal Government in July this year, announced ongoing plans to invest over $3 billion to improve transmission and distribution infrastructures nationwide, but this was after it said the N30 billion monthly electricity subsidies would end by 2021 which is just few weeks away.

To this end, the electricity sector is expected to generate its revenue from the power sector market, even though government has consistently given assurances of continued investment in power generation to cater for current and future needs.

Vice President Yemi Osinbajo had hinted at the 14th Nigerian Association for Energy Economics/IAEE conference that the stabilisation of the electricity sector would increase the demands for power to capture the country’s large population.

He said: “Electricity tariff reforms with the service based tariff has led to collections from the electricity sector by 63 percent increasing revenue assurance for gas producers and stabilizing the value chain.

“It is anticipated all electricity market revenues will be obtained from the market with limited subsidy from next year as reforms in metering and efficiency with the DisCos continue to improve.

“Accelerated investment in transmission and distribution, over $3 billion will be out into this sub-segment of the electricity value chain that will put us on the path to delivering 10 gigawatts through the interventions of the Central Bank of Nigeria, Siemens partnership, World Bank and Africa Development Bank, and others.”

With the Federal Government’s resolve to  remove subsidy in the electricity sector projected at N1 trillion, various experts have said the ongoing interventions by the Central Bank of Nigeria (CBN) was a major avenue to ease off from consumers, the burden of high electricity tariffs.

Interventions introduced by CBN to keep the sector afloat from liquidity crisis includes:  Power and Aviation Intervention Fund (PAIF), hovering at about N300 billion, Nigerian Electricity Market Stabilisation Facility (NEMSF) at about N213 billion, N140 billion Solar Connection Intervention Facility, over N600 billion tariff shortfall intervention as well as a recent N120 billion intervention designed for mass metering.

While insisting the interventions were critical, stakeholders in the sector have urged the CBN and government to tweak the interventions in manners that would ease further burden on the masses and also halt arbitrary billing of consumers.

Former President and Chairman of the Council of Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola, who noted that the argument about removal of electricity subsidy if any, was not the most fundamental to Nigeria at the moment, said government would have to consider protecting the welfare of the people by underwriting some of their basic household and infrastructure needs.

According to him, the initiatives put in place by the apex bank may help the sector resolve the liquidity requirements to some extent but the end must be allowed to justify the means of assurance of supply of electricity requirements in exchange for such support by the CBN.

He said: “Rather, the inability to supply the electricity needs of Nigerians, in the right quality and quantities. If supply deficit could be remedied, the cost of electricity and energy generally would be cheaper to Nigerian households firms and even government compared with the cost of alternative sources of power to them.”

An energy lawyer, Osagie Agbonlahor, who accused government of broaching the idea of deducting the huge outstanding bills on electricity consumed by military barracks and government offices during former President Olusegun Obasanjo’s administration, said the development has remained elusive since then.

Agbonlahor, who doubted the possibility of electricity subsidy which he noted, could be part of the failure of electricity operators and revenue collectors noted that: “Until we start to do the right things, we are just going to be beating round the bush.

“How many army, police, air force, navy barracks that the residents pay electricity rates at all? How many government ministries, army, air force, navy offices pay for electricity consumption? Who has ever had the courage to drive to the barracks to remove wires as they would to ordinary Nigerians?

“For how long have this been going on in this country. Take away these huge leakages and you will see that the ordinary Nigerians have actually been sustaining and subsidizing the consumption of these fat cows.”

He asked government to do a forensic audit of N1 trillion subsidies to check where the so called subsidy was coming from.

A Professor of Petroleum Economics, Wunmi Iledare noted that though interventions by the CBN as a payable loan was understandable even if it was a forgivable loan, insisted that the current structure of the electricity market in the country could mar the interventions, stressing that there must be  decentralized energy planning system.

He warned that while it was good banks were targeting spending; subsidy may be a political expediency instrument not economic efficiency.

“It should be disavowed. By the way estimated billing now termed electronic billing is fraudulent! A quick way to bring subsidy to an end is metering and decentralisation of power management and services. Nearly everything centralised in the fashion of militarism has failed woefully, education, health, energy services and road infrastructure, name it.”

Another energy expert, Eseosa Onaghinon, while stating that there was about 40 per cent inefficient loses between transmission and distribution, advised that the energy sector must get rid of inefficiencies usually passed on to consumers.

“If we do not address such losses that occur, we might as well get into a trap where it’s an unending discussion of ‘subsidy’ though it is actually continuous inefficiencies covered up as subsidies.”

Recall that the Special Adviser to President Muhammadu Buhari on Infrastructure, Ahmad Zakari recently disclosed that the nation needs to optimise the potentials in the power sector through a cost-reflective tariff regime.

While noting there was a gap of N28 per unit Allowable Tariff (AT) in the country a gap of as against what is currently paid under the Service Based Tariff, he added that the gap in the electricity supplied to consumers therefore stands at about N1.0 trillion between 2019 and 2021.

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