ICAN Calls for Postponement of Proposed Increase in Electricity Tariffs

*Says Nigerians grappling with consequences of unified FX rate, petrol subsidy removal

Dike Onwuamaeze

The Institute of Chartered Accountants of Nigeria (ICAN) has asked the National Energy Regulatory Commission (NERC) and electricity distribution companies (Discos) to postpone the plan to implement an increase in the electricity tariffs in the country.

ICAN said delaying the increase in the electricity tariff was important because Nigerians are presently grappling with the consequences of the recently introduced market determined exchange rate and removal of petrol subsidy.
The President of ICAN, Dr. Innocent Okwuosa, gave the advice yesterday, in a press statement titled, “Re- Application for Rate Review by the Electricity Distribution Companies.”

Okwuosa stated: “We recommend that the NERC and the DISCOs should differ the implementation of a rate increase to a future period.
“This is because Nigerians are still grappling with the effects of macroeconomic policy decisions such as the removal of petrol subsidy and the unification of the foreign exchange rates.

“The proposed increase at this time will further worsen the plight of the masses and push Nigerians into multidimensional poverty.
“Furthermore, the increase will significantly increase the cost of doing business particularly for the SMEs. These enterprises may be unable to pass on the additional costs to their customers, increasing the risk of business closures and further worsening the unemployment rate.”
He said the government and NERC should consider additional short-term tax breaks and other incentives to the Discos as a form of production focused rather than consumption focused subsidy as an alternative to the hike.

He added that the Discos would, however, need to demonstrate better accountability and transparency in governance and reporting, adding that, “this is an area in which chartered accountants can provide valuable support.”
In addition, “the Discos should invest further in their distribution network to reduce the technical losses and build a platform for sustainable electricity distribution.”

Okwuosa, also said members of the ICAN possess the expertise and experience to support the commission and the Discos, “in providing deep insights on the inputs, market conditions and assumptions related to the proposed price increases,” and support their efforts “to ensure transparency, fairness and accountability in the electricity sector.”

He further stated that ICAN’s review of the applications made by nine Discos for the increase in electricity tariff showed that there were some areas that required further considerations and disclosures.
These areas, according to him, included their cost breakdown, socio-economic impact assessment, macroeconomic and investment assumptions as well as capital and operation expenditures provisions.

The ICAN boss said, “apart from two discos, others did not breakdown cost implicitly to justify the proposed review. Also, the application mentions the need for cost recovery but fails to provide a comprehensive breakdown of the costs incurred.
“We believe that transparent and evidence-based justifications are essential to ensure fairness, accountability, and the protection of consumer interests.”
He added that, “while some applications claim to have conducted an analysis of customer usage patterns, income levels, and socio-economic factors, they lack specific details on the methodology and findings of this assessment.

“A thorough and transparent socio-economic impact assessment is necessary to ensure that the proposed rate adjustments do not disproportionately burden consumers, particularly those with lower incomes. Without sufficient evidence, it is challenging to evaluate the true affordability implications for consumers.”
Commenting on the macroeconomic and investment assumptions of the Discos, the institute stated that, “the applications present macroeconomic and investment assumptions for future years but do not provide reliable sources or a comprehensive analysis of how these factors have been considered in determining the proposed rate adjustments.

“The accuracy and validity of these assumptions should be clearly supported with up-to-date data and robust economic analysis to ensure that the proposed rates are realistic and justified.”

Moreover, it observed that, “clarification on the assumptions and their accuracy to reflect the current economic conditions (such as inflation and currency devaluation) is necessary for annual capital and operation expense provisions.”  
Okwuosa, said the recent application to increase the price of electricity amidst the overwhelming series of policy resets made by the new administration like removal of petroleum subsidy and the unification of all segments of the Nigerian forex market, has raised different criticisms due to its timing and increase.

He, however, observed that this price review was in accordance with the bi-annual review process as entrenched in the Multi-Year Tariff Order to reflect the current realities in the macroeconomic space.

“ICAN has reviewed the applications for a minor review of electricity tariff by the DISCOs as well as areas for improvement in their application.

“As part of our mandate, we have also presented our recommendations on how to improve fairness, and accountability in the electricity sector.”