The proposed increase in electricity tariff – by Dapo Fafowora

1 Comment » February 28th, 2008 posted by // Categories: Energy Development Project



The proposed increase in electricity tariff    28/2/2008

Dapo Fafowora

The Minister of State for Power, Hajiya Fatima Ibrahim, has been reported by the media as confirming speculation that the Federal Government plans to increase the electricity tariff with effect from next month. The current tariff is N6 per kilowatt/hour. The Minister gave no indication of the proposed new tariff, but defended it on the ground that increased investment in the power sector is needed to generate 100,000 megawatts by 2015, the new magic year by which the Nigerian economy will climb to within the 20 largest economies in the world. According to the minister, some $150 billion (N18 trillion) is needed to achieve this target in the generation of electricity.

The announcement of the proposed tariff increase was a bombshell, as it was totally unexpected, particularly in view of the current widespread power outages in the country. As it were the public is being asked to pay more for less and unstable electricity supply. And there is no evidence of any prior consultations over the proposed increase with the public, or stakeholders, particularly the trade unions, and manufacturers. Already, there is widespread outrage over the proposed increase in the electricity tariff. Even the minister admitted that Nigerians were already paying too much for electricity, and that the proposed increase will be modest. No matter how modest, the Nigerian Labour Congress (NLC) has already rejected the proposed increase as uncalled for, and the official argument in favour of it untenable. The public is solidly behind the NLC in its opposition to the proposed increase. It is a burden that many will find unbearable, particularly at a time when the economic and financial burdens of the masses have increased significantly in recent years, under civilian and supposedly democratic governments that should be more compassionate in imposing additional financial burdens on Nigerians. Official assurances, not new, that the new tariff will lead to an improvement in power supply have been treated, rightly, by the public with cynicism and disbelief.

The inherent right of the government to increase direct, or indirect tax, or tariff on public utilities, is not being disputed. Despite the oil wealth, the government needs funds to run the country and provide it with efficient public utilities, such as electricity. But this right is not unlimited, and can only be claimed by the government on the basis of public accountability, efficiency and transparency in governance. That is not the case now as virtually all public utilities have collapsed. Two years ago when the tariff on electricity was increased, the public was given every assurance that there would be no further increase in the tariff for a while. Since then power outages have worsened considerably. Most households get less than four hours of electricity supply daily. Many do not for days, even weeks. And that is after the claim by the Federal Government that, during the tenure of President Obasanjo, some $5 billion, or $10 billion, or even $16 billion was invested in the power sector. The government is not even sure of the exact amount of its recent financial investment in the power sector. In the Emirates, a brand new city is being built for only $22 billion. The bad roads too have to be fixed, and the government says the cost of doing so will run into billions of dollars as well, not to mention the cost of fully rehabilitating the railways that have virtually collapsed. Where will all that money come from? Certainly not from the overburdened taxpayers.

Even by the scandalous standards of financial profligacy and recklessness of our governments, an investment in the power sector of the magnitude being claimed by the Federal Government ought to lead to a significant improvement in power supply in the nation. Where did all that money go if the practical effect of the huge investment is that power supply in the nation has worsened considerably? Obviously, most of it was frittered away, or wasted, in a massive cesspool of corruption, and managerial inefficiency. If that is the case, what is the justification for imposing new financial burdens on the masses when there is no assurance that they will get value for money, and for their financial burdens? For how long will the poor continue to subsidize the rich in our country? Already many households, including the middle class, simply cannot afford the current tariff, and have had, in most cases, to turn off their lights even when power supply is available. A middle class household, including pensioners, now spends nothing less than N120,000 monthly on power supply, most of it on the running and maintenance of their generators. Unlike public officials, most of whom get their electricity bills paid by the government, despite the so-called monetization of fringe benefits, the masses are actually obliged to meet their electricity bills, or have their electricity supplies cut off. The biggest debtors to PHCN are public offices that hardly ever pay their electricity bills. Yet, they do not have their lights turned off. They are a privileged class. It will be quite interesting to know how many public offices and officials currently owe PHCN, and how much they actually owe. A full disclosure of the extent of the debt will be quite shocking.

The government can be expected, as usual, to argue that the unit cost of electricity in Nigeria is one of the lowest in the world, and that this is a disincentive to investment in the power sector. But independent producers have been applying eagerly for a license to generate electricity. There is a long waiting list over this. Why are they investing in the sector if it is as unprofitable as the government claims it is? It is the kind of specious argument the government has often put forward unjustifiably in defence of the frequent increases in the price of petroleum products. But this is simply not true. If the government thinks otherwise, then it should investigate and publish comparative figures for other developing economies such as ours, particularly in Africa. But even if that was the case, the unit cost should be situated in the context of a very low per capita income in Nigeria, much lower than those of our African neighbours. If we have to subsidize the cost of electricity so that our people can have and live in some decency, then so be it. Electricity is so basic to civilized living standards that most of the advanced industrial countries, including the United States, the chief apostle of free markets and liberalisation, offer their citizens a subsidy on it. It is ludicrous that, as poor as our people are, instead of getting a subsidy on electricity, they are being made to bear a burden that is intolerable.

But there is a more formidable reason for dismissing the proposed increase as untenable. Given the low consumption per capita of electricity in Nigeria how does the government hope to generate the whopping sum of $150 billion from the new tariff? What is the total annual income from electricity consumption in Nigeria? What difference will the marginal tariff increase make to the income of PHCN? And how long will it take for the government to save the $150 billion, or N18 trillion, it says is now required in seven years to modernize the power sector? In fact, the additional income from the new tariff is not likely to increase significantly as most consumers will simply reduce their consumption of electricity, and make do with other less expensive and more reliable source of power supply. Already candles and lanterns are flooding the market in anticipation of the proposed increase.

Has the government given any thoughts to the inflationary effect of the proposed tariff increase on the domestic economy? Certainly it will lead to a new round of agitation and strikes by the unions and workers for wage increases that cannot, in good conscience, be turned down by the government. Manufacturers can be counted upon to increase the prices of their products, as will farmers, and traders. It has taken the financial authorities some twenty years of a very painful economic adjustment programme to bring inflation under control. Why squander this gain, achieved through a huge sacrifice by the public, by setting the economy on the path of another inflationary spiral. The government should think carefully about the possible negative economic consequences of the planned tariff increase on electricity supply before embarking on it. It is not going to do anyone any good at all. It will increase the financial burdens of the poor, at a time when they need more financial relief in the form of tax breaks, and a more stable price structure.


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One Response to “The proposed increase in electricity tariff – by Dapo Fafowora”

  1. Adeniyi Mustapha says:

    How can a small community like a local government acquire a license to generate and service the power needs of the local government. If this includes taking care of the power distribution can this be done or must it be supplied first to the national grid

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