FASHOLA: WHY NEW TARIFF ORDER IS INEVITABLE

January 31, 2016 – The Minister of Power, Works and Housing, Mr. Babatunde Fashola has explained that the new Multi Year Tariff Order due to commence on February 1, was aimed at correcting the whole system in the entire value chain of the power sector adding that it remained the most viable means to achieve steady power supply in the country.

Fashola, who spoke in an interview with reporters at the site of the 2 X 60 MVA 132/33 KV Sub-Station Kukwaba Power Project during a continuation of the nationwide inspection, verification and fact finding tour of projects said the ready acceptance of the new tariff order would also galvanize the sector and boost Power Sector investments which would in turn usher in more development in the country .

Responding to a question from one of the journalists who wanted to know if investors with interest in smaller Power Plants still had a role and a market in the Power Sector given the bigger Generating Plants inspected in the course of the tour, the Minister who took time to differentiate between the two Power Plants and a number of Transmission Sub Stations inspected said investors would only come into the Sector if the pricing was right.

Fashola, who noted that he and his team have so far visited two power generating plants – Geregu I and II and transmission stations in Benue, Nasarawa , Plateau in Pankshin and in Abuja, said there was need to distinguish between a transmission and a power station adding that while power stations generate the power, transmission stations transport power to various parts of the country.

Pointing out that generation is now a commercial, private business. Fashola added “Let’s understand that, Geregu 1 is one of the plants that has been sold and Geregu 2 is one of the NIPP projects we are completing” adding, that government was no longer generating power “except with the NIPP plants that it is completing and handing over”.

“There are two plants, one was grey that’s Geregu 1 and has been sold while the other was red and white that’s Geregu 2. Geregu 1 has been sold just like the other power generating plants. The size of those power plants are quite impressive. Smaller power plants that can do 5 ,10,20 MW are part of what we expect will come on stream as we go on but their ability to come on stream depends on ability of consumers to pay. “

According to the Minister being a business no one would want to come into it if the cost cannot be recovered. “That is where the issue of tariff is. So tariff review is not necessarily government or NERC delivering an ultimatum of take it or leave it. That’s not it; that’s not the situation. It’s a practical choice and as a new administration, this is the first major policy that we have made. So all of what has happened was inherited; the options before us is start from the beginning or repair and manage what you have. It’s like a chess game that you did not start, you are now in the middle, somebody has played the game to the half way and you must continue. May be your first move you might lose your Queen or your Knight or your Rook, but if there is a game plan to ultimately capture the opponent’s King then play on.”

The minister, however, noted that the power sector would receive the necessary boost if the new tariff was accepted . “If we allow the tariff regime as now reviewed to stay, instead of two, two year tariff changes we now have a ten year tariff. Inside that same order that reviewed the tariff upward, that same order says take out the fixed charge and the same order also made provision now for willing buyer and willing seller to say if you reach an agreement to buy power at a price higher than the market tariff go and do your power”.

According to the Minister, this would have a number of positive spin offs. “What that will mean is that some people who can afford to even pay more will get off the Grid, do their own arrangement, whatever they take off the Grid comes back to the masses. But you can’t on one hand then go to court as some people have done and say reduce the price; if you reduce the price or don’t implement the tariff, if you succeed which I hope you don’t, what will happen is that you are restoring fixed charge because it is the same tariff order that takes away the fixed charge which some people say they don’t want and those who don’t want it are in the majority”, he further explained.

Fashola said stopping the tariff order, would also mean taking away the willing buyer and willing seller adding, “Somebody called me yesterday and they have about 20 MW plant in the country but they were waiting for the tariff order to come into operation so that they can start closing their business. Now every power plant is going to run with mechanics, electricians, engineers and imagine if those 20 power plants come into operation, the 20 engineers that will be there will be our children; that’s how an economy is built.”

“This tariff provides that opportunity so you can’t take the one you like and say the others should go away; if you succeed the whole tariff order goes”, the minister said.
Fashola explained that the introduction of the new tariff order was not a “take it or leave it situation but a move at correcting the whole system.

Reiterating that financing, market price and recovery were key to the entire value chain, Fashola added, “Distributors must recover, transmission must recover, Gencos must recover and the gas suppliers too must also recover their cost. If one end of the pricing is wrong it’s going to affect all ; so if we solve this we have solved the problem that is common to all the participants.”

Resolving the pricing issue would leave room for addressing the other specific problems of the sector like transmission and gas supply .”But if we solve all of the specific problem and price is not right there won’t be power, I am so clear in my mind, ” the Minister said.

Promising that his ministry would continue to provide the enabling environment for the development of the sector irrespective of the hurdles before it, the minister declared, “Investments in the power sector is a veritable source of economic development and employment for Nigerians”.