Amid the power sector’s challenges including constrained gas reserves, the Senate Committee on Privatisation and the Nigerian Electricity Regulatory Commission (NERC), disagree on how to restore balance in the sector, This DAY reported.
The West African country has been battling with insufficient power supply due to power generation constantly going up and down, costing the sector millions of dollars in revenue.
In addition, NERC could soon be introducing cost-reflective tariffs, if some kind of financial stimulus to operators is denied.
Media reported last week, that the committee said it is against tariff increases in quantum leaps, as well as the provision of subsidies for operators.
However, NERC explained to the committee that in the absence of a subsidy or other form of incentives, it was mandated by the Electric Power Sector Reform Act (EPSRA), which the National Assembly signed into law in 2005 to periodically review and provide cost reflective tariffs for the power sector, media reported.
The regulator’s acting Chairman, Dr. Anthony Akah, explained that on the back of the EPSRA, NERC was mandated to act in the interest of stakeholders in the sector. Akah also noted that the federal government was planning on a mechanism that would protect consumers from a possible rate shock.
Media noted that by law, NERC’s periodic tariff reviews are usually done every five years for the major reviews and bi-annually for the minor reviews.
Cost reflective tariff
Akah said: “I want to say distinguished members that private players are there to provide services and make a far return on investment.
“The National Assembly gave us the right to bring in cost reflective tariff. The challenge we have as a regulator is that we don’t know which other miracle to do, because in the absence of subsidy and other mechanism coming in, we are bound under the law to provide a tariff that will cover the cost of investment and in the absence of that, there is no incentives for the players in the sector to come up and bring power.”
He further explained that if there are no fair return on investments either through cost reflective tariffs or highly subsidised tariff by the government, incentives to reduce the cost of operation, as well as tax holidays, and financial bonds with low interest rates, the sector would pack up, media reported.
NERC advocates for subsidy
Akah added: “I know the federal government at this time is considering various options to mitigate possible tariff hike. The petroleum sector as it is today has incentives. Compare petroleum and electricity, electricity in my opinion holds more importance as a trigger to the economic development and wellbeing of Nigerians.
“If we can have subsidy in the petroleum sector even up to today, why can’t we figure out something or a mechanism to be able to support (the power sector).”
Akah concluded: “I must say that there is an inter-ministerial committee with the regulator and I am fully aware that the federal government is committed to look at various options to mitigate rate shock and that Nigerians have the kind of power they deserve at a reasonable cost.”