Why Electricity Tariff Must Be Hiked

The issue of hiking electricity tariff in the country has elicited mixed reactions. While power firms say it is necessary for them to recover cost, consumers say the industry must attain a level of stability before tariff hike. The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, says Nigerians must be prepared to pay more for electricity. Emefiele who was head, Nigerian delegation to the International Monetary Fund/the World Bank Group meetings in Lima, Peru, says the country is not sliding to into recession. He says Nigeria came out of the meetings with a road map on the way forward, including adopting economic diversification and stricter foreign exchange controls.

How would you describe proceedings at this International Monetary Fund (IMF)/World Bank meetings

Aside from the World Bank and IMF meetings that we had, we also held several side meetings with some potential foreign investors who have shown tremendous interest in Nigeria; we held meetings with some international banks, who are seeking to develop their relationship with Nigeria, the Central Bank of Nigeria (CBN) as well as the Federal Ministry of Finance. We also held meetings with some rating agencies  to provide insight into the economy and what we are doing to support and grow the economy.

Basically, what we can say as the main issue is that the world finance leaders as well as the governors of central banks, came to the conclusion, to the point where the global growth was further revised downward.

When the Spring meetings were held in April, global growth was projected at 3.8 per cent, but at this meeting, the growth was revised downward to 3.1 per cent. For African economies in April when we held the meeting, global growth was projected at over five per cent, but at this meeting, global growth for 2015 has been revised downward at 3.75 per cent, and in fact for next year,  growth for Africa  has been projected at about 4.25 per cent.

What is the implication of this downward trend?

What this tells us is that the slowdown, as a result of the drop in commodity prices, or the end of the quantitative easing (to the extent that the United States (U.S) is already contemplating raising rates through sale of assets), as well as the geo-political tensions, have affected very many economies to the extent that they are slowing down, and in some cases, some of the economies have also gone into recession.

What is the way forward?

The meetings concentrated on what can be done to reverse the trend and what kind of specific options and solutions that can be provided for the different economies in order to turn their situations around. Basically, for those economies that are really affected by drop in commodities prices, and in this case Nigeria, the basic solutions and suggestions that came up were that first, there is a need for us to diversify our economy away from oil and commodity prices.

We are already doing that, and we use this opportunity to thank Mr. President for the various interventions he has made in support of our various efforts to diversify the economy away from oil, or away from commodities’ prices. That gives credence to what we are doing in our various attempts to catalyse the economy, by making intervention funds available to support agriculture, Micro Small and Medium Enterprises, and other various interventions that we have put in place to support the growth of the economy.

Another solution that came up, was that countries that are affected by commodity prices and other external shocks should adopt country-specific options that they think would help in addressing their problems. That gives credence to the specific options that we have taken regarding our decision, not to continue to adopt an indeterminate depreciation of the naira. So, we will continue to monitor the situation (as I have always said), and to ensure that we refocus our mind, and everything we do, to the extent that we see what we can do to continue to conserve our reserves  and achieve some level of stability in the exchange rate.

What are the high points of the African caucus meetings with the  IMF/WBG?

There were some specific meetings in the African caucus,  which is the Group of Finance Ministers and Central Bank Governors  from Africa, which was held specifically with the Managing Director of the IMF, Mrs. Christine Lagarde and President of the World Bank, Dr. Jim Kim.

At that meeting, the African caucus used the opportunity to raise five key issues; one, we discussed how the World Bank and IMF can assist African countries  in enhancing financing for sustainable development.  These should help the African countries on how they can raise finance and how they can receive support from the IMF and the World Bank to ensure that by 2030, extreme poverty would have been eradicated.

The African governors and the IMF also discussed how the world financial bodies could assist African countries in stemming illicit financial flows so as to reduce, or eliminate the incidence of loss of revenues and taxes from African countries.

The African caucus also discussed how the World Bank and IMF could assist African countries in achieving their economic transformation and diversification project,   so as to reduce the adverse impact of the drop in commodity prices on their economy.

The caucus also discussed how the World Bank and IMF, could assist in financing regional transformative infrastructure projects. And indeed even on this, we even held our side meetings with the World Bank Team (which was headed by Nigeria’s Ms. Arunma Oteh). We had very constructive engagements with her, and the IMF have made a commitment that they will assist Nigeria in whatever form, in raising or sourcing finance for some of our infrastructure projects.

Fifth, the governors and finance ministers, also discussed how the IMF will assist African countries in reducing diversity, quotas and other problems that may appear. Here, we’re talking about increased representation of Africans, both in the World Bank and IMF. At the specific meetings that we held with the World Bank, the President, Dr. Jim Kim, specifically mentioned the fact that three notable Africans, one of which included our own Ms. Oteh, were appointed as Executive Vice Presidents, to support the attempt by the World Bank to ensure that Africans have representation in the World Bank. But of course at the IMF, we also canvassed the need for and to press further, that more Africans are represented at the senior and board levels of the IMF, and we received commitment at the IMF that this will be done.

What level of success has been recorded in the nation’s reform efforts so far?

Yes, in Nigeria, we have been adopting reforms and this started about two years ago, or much earlier. The prime issue from the fiscal side, has been the fact that we have tried to expand our tax-base so as to improve on revenue. You will all recall that last year, the Federal Ministry of Finance engaged with McKinsey, and within the period, McKinsey raised almost N75billion as incremental revenue. And this year, they have been given the target to raise it to a minimum of N150 billion, as a way of raising our revenue base so as to begin to see how we can shore up our revenue and rely less on oil.

CBN’s denial of access of foreign exchange to some items has been construed as a ban?

Let me repeat that we did not ban the importation of any item; what we just did was to exclude (them) from accessing foreign exchange. These are items we think can be produced in this country. In fact, in the past, these items have been produced in the country in large quantity, and we think that because of the challenges we have, following the drop in commodity prices and the drop in revenue accruing to the nation, we felt there is a need for us to begin to produce those items in the country. That position still stands.

I must have been quoted out of context if anybody said I am reconsidering that position. What I only said is, the exclusion stands, and I have even mentioned in different fora, list of different items which should even be excluded, which some manufacturing companies think can be produced within the country, but we have said no, that we need to properly digest these 41 items that have been excluded from foreign exchange.

The basic issue is this; there is a slowdown. It is a fact that revenue has dropped as a result of the fall in commodity prices. If that has happened, we need to prioritise, just like Mr. President has said. We need to prioritise to make sure that foreign exchange is made available only to those who are importing essential raw materials and products we know cannot be produced within the country. That is the only way we can conserve our foreign exchange and reduce the demand for foreign exchange for the importation of some of these products we are saying can be produced in the country.  And we will continue to plead and crave everybody’s indulgence,  give us the support, as we are convinced that these items can be produced here in this country.

I have read and heard from people, saying the Central Bank is preventing people from getting foreign exchange. Let me also say that the Central Bank’s role is to intervene in the foreign exchange market, and we have tried as much as possible the broadening of the foreign exchange base, so that those who earn foreign exchange through export proceeds  can also make their funds available in the market for everybody to share.

So, from time to time, we will continue to do our best to provide foreign exchange in the market, to meet the import needs of our people, but what is important, is for us to understand that there are challenges facing practically all the countries in the world. There are only just few countries that we can say are insulated for now, but even at that, they, including the US, know that they have to be careful in whatever contagious action they take, otherwise, it will also affect them.

So, we need everybody’s cooperation to ensure we meet those targets, we need to refocus our minds and think of the best way to diversify our economy, away from excessive reliance on oil.

How true is it that investors are exiting our markets?

It is true that investors are pulling out their investments in the country. And I must tell you that in the third quarter of this year alone, I read in a report that almost $48billion were capital outflows that left Emerging and Frontier markets.

So, what does that mean?

It means that people are pulling funds and are beginning to look at economies, such as the U. S. and other areas where they think there are opportunities, and there are fears that the drop in commodity prices will ultimately affect economies that depend solely on commodity exports.  And  that is why we are saying, it is time for us to think as nationalistic Nigerians; that we have to carry our cross by ourselves; we have to solve our problems by ourselves; nobody is going to solve our problems for us. That is why we will continue to appeal to all of us, to embrace and support the measures and policies that we are putting in place, because all these are meant to see how we can diversify our economy away from excessive reliance on oil.

Whatever support that is needed, the Central Bank and the Deposit Money Banks, are willing to give those support, and I can assure you that in the course of time, even interest rate will begin to come down, and our people will begin to enjoy the benefits of the actions that we have put in place to diversify our economy.

What is your take on the push for electricity tariff hike?

When you talk about inflation and exchange rate as being the model for pricing tariff and all that, you are very correct. And that is why we are doing our best to see to it that we keep inflation under check, and that is why we have been (I use the word stubborn) in even adjusting the currency further, and you will notice that in the last eight months, we have achieved so relative stability in exchange rate, and that will continue. But I also read in the papers that we are not going to continue to enjoy the tariffs that we have seen so far.

For you to have good electricity supply, you need to pay a little more, and the truth is that, if we compare the cost of generating our own electricity using our generators, with the cost of using the existing distribution companies’ grid, you will find out that what we spend on generators is significantly higher than the cost/kilowatt hour, using the DISCOS. For example, using your generator costs as much as N80/kilowatt hour, and today, using your DISCOs, you are paying less than N20/kilowatt hour in some of the cases.

What we are saying, is, even if you have to pay a little more so that you can throw away your generator, pay a little more so that you can have more electricity, and I think it is worth it. These are some of the policies that the NERC is putting in place to support what is called the Cost Reflective Tariff. But I can assure everybody that whatever that cost reflective tariff turns out to be, it will still be substantially lower than the N80/kilowatt hour spent today on our generators.

To what extent has CBN intervention to DISCOs and GENCOs galvanised the power sector?

We have seen some improvement in power generation and it is also true that the wheeling capacity in the transmission grid, is limited. I am also aware that we’ve been in discussion with government about efforts being made to encourage investment in the transmission grid, so as to improve the capacity of the transmission to be able to absorb more energy that is generated so that more power can get to our people.

We will continue to do so and in the course of time, the actions that are being taken by government to improve the transmission capacity, will be unveiled to all of us and will agree that actions are being taken.

The funds were provided to distribution and generating companies, as well as gas firms, but not all of those funds have been disbursed, because of the issues that we are trying to resolve with the Nigerian Electricity Regulatory Commission, as well as the Nigerian Electricity Bulk Commission. Once those issues are resolved, more of those funds will be disbursed and then we can start to talk about the impact. Yes, those DISCOS are supposed to use the money to buy meters, transformers, and so on so as to improve their capacity, while the GENCOS are required to use the funds to acquire equipment, replace some of their obsolete equipment so that they can also improve on their generation capacity.

We’ve started to see the impact of this positively, by the time the remaining funds are disbursed, it will help to improve the distribution and generation capacities, that is why I told you earlier that government, realising that the transmission capacity may be hindered, is already taking steps on how to invest in transmission, so as to improve capacity in that area.

Is Nigeria sliding into recession?

Let me quickly correct that, Nigeria is not sliding into recession. We have had two quarters of slow growth. Like I told you, even the world economy has revised its growth outlook.  So, what we are saying is that, because we have seen two successive quarters of slow growth, that we should embrace the policies that we are putting in place both at the monetary and fiscal fronts, so that we can see a reversal and increased growth, not slowing growth, so no one has talked about Nigeria going into a recession. It means we need to work hard to reverse the trend  so we can move to positive growth, rather than slowing growth.




Source: The Nation Nigeria

Notify of
Inline Feedbacks
View all comments
Would love your thoughts, please comment.x