4 months ago
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Members of the Manufacturers Association of Nigeria are determined to dictate the tariff they will pay for electricity under a willing-buyer, willing-seller arrangement, DARE OLAWIN writes
Since the removal of electricity subsidies by the Federal Government in areas categorised as Band A, the tariff payable by customers in these areas has risen above N200 per kilowatt-hour from N68/kWh. This has put the Manufacturers Association of Nigeria at loggerheads with the electricity distribution companies nationwide. Members of MAN have repeatedly claimed that they would not be able to pay the new tariff, which they described as unaffordable and outrageous.
In May, the manufacturers insisted they would not pay the new tariff. MAN instructed its members across the country to persist in paying the previous rate of N68/kWh to the distribution companies pending the resolution of the petition filed by the association to the National Electricity Regulatory Commission.
In a letter dated May 9, 2024, MAN instructed all its members to adhere to the previous tariff rates and urged them not to be deterred by NERC’s actions, emphasising the association’s commitment to escalating discussions with the DisCos and the Federal Government.
“In the face of this stark reality and to ensure that members’ businesses are not disrupted and the DisCos are not starved of needed revenue, you are advised to pay the old rate on account, whilst we intensify our engagement with NERC/DisCos to ensure that due process is followed in tariff setting and that our members are only required to pay a fair price for power supplied.
“We have since instructed our expert/solicitor to stand ready to take further necessary action to ensure that our members are not intimidated or compelled to pay the rate in dispute,” the letter read in part.
The Director-General of MAN, Segun Ajayi-Kadiri, has stated that the new electricity tariff would cripple many businesses if sustained.
He said, “Our members have been served bills reflecting the increase and some have been informed that electricity supply to their factories will be cut off. This is unfortunate and does not demonstrate the willingness to engage manufacturers to arrive at a mutually beneficial outcome.”
The question many are asking is whether or not the manufacturers have the power to reject the new tariff while still enjoying the services provided by the power companies, especially when the two parties are all business owners.
While defending its petition before the NERC, the association pleaded that the new tariff be reversed as the energy cost was killing members’ businesses.
The counsel to MAN, Tola Oshodi, urged the electricity regulator to reverse the tariff for Band A customers, saying it was inimical to the manufacturing sector.
“We are here to appeal. MAN was not allowed to make representations before the new tariff was fixed. MAN is recognised in the guidelines as a stakeholder that must be engaged before such decisions, but it never happened. The provision for stakeholders’ engagement was not complied with.
“We appeal that the new tariff should be suspended as we go through the process of engagement,” the counsel pleaded.
While the manufacturers continue to engage in a brawl with the DisCos, it has since left the Federal Government, whose decision to remove electricity subsidies jerked up the cost of energy by close to 300 per cent.
To press home their demands, the manufacturers took their case before the courts, asking them to stop the implementation of the new tariff.
MAN, in conjunction with Super Sack Company Limited and BBY Sacks Limited, Mama Sannu Industries Limited, Dala Foods Nigeria Limited and Tofa Textile Limited, had in suit number, FHC/KN/CS/144/2024, dragged the Kano Electricity Distribution Company before a Federal High Court.
The court issued an order in May restraining the NERC and the Kano DisCo from implementing the new electricity tariff for Band A consumers.
Similarly, in June, a high court sitting in Lagos issued an interim order restraining electricity distribution companies and the NERC from increasing tariffs.
In the suit marked FHC/L/CS/881/2024, MAN prayed that the DisCos and the electricity regulatory body should allow the old electricity tariff to remain.
As the manufacturers continued to kick against the tariff hike, power distribution companies said they were losing revenue as companies refused to pay the new cost of electricity.
As a result, the Kano Electricity Distribution Company dragged the Manufacturers Association of Nigeria before a high court of the Federal Capital Territory, Abuja, over what it called unlawful interference resulting in revenue losses up to the tune of N5.3bn.
The lawsuit was a counter-action taken by the DisCo following the rejection of the new tariff hike by MAN, Kano Branch and its over 41-member affiliate to boycott payment of the new tariff to the DisCo through a court injunction the association obtained on behalf of maximum demand consumers on Band A in the three states of Kano, Katsina and Jigawa.
KEDCO, through a statement issued by the Head of Corporate Communications, Sani Sani, said the actions of MAN had subjected the company to a huge revenue loss of up to over N5.3bn per month.
“Kano Electricity Distribution Company has dragged the Manufacturers Association of Nigeria to the High Court of Federal Capital Territory, Abuja, over unlawful interference with its business, causing huge financial damage to the company. The actions of MAN have subjected the company to a huge revenue loss of up to over N5.3bn per month.
“This is despite their knowledge about FG’s removal of electricity subsidy for Band A customers and fluctuations in various macroeconomic indices such as exchange rates, gas prices, inflation and other factors responsible for computing electricity tariffs. These factors have warranted KEDCO’s cost-reflective tariff increase from N159.13 per kWh to N225.00 per kWh.
“The circular signed and issued by the DG of MAN, Segun Ajayi-Kadir, directed all its members, including other Band A customers, to disregard their obligations and pay the old tariff rate on account rather than the statutory new tariff, as approved by the regulator. This has led customers on Band A to breach their obligations to pay the newly approved tariff,” Kano DisCo’s spokesperson, said.
He stated that the action of MAN had caused it to unfairly bear the burden of FG’s subsidy removal on Band A customers and the attendant losses, therefore, leaving it with no other option than to drag MAN to court for a breach of contract and unlawful interference and conspiracy against its business.
Disconnection
As the controversies continue with no end in sight, the DisCos have continued to wield the big stick, disconnecting any manufacturer who refused to pay the new tariff.
The director-general of MAN disclosed that electricity distribution companies had disconnected over 100 manufacturing firms.
He told The PUNCH in an exclusive interview that 10 of the association’s members had been disconnected in Kano.
“The Disco in Kano is still disconnecting our members despite the court injunction. As an association, we do not want to engage in such (legal action) but it comes as a last resort.
“You can imagine that as of today, more than 100 of our members have been disconnected, which means their workers have been asked to go home. It means that their production processes have been halted. It means that they are unable to fulfil their obligations to their suppliers, and they have started to lose money,” he explained.
According to the MAN DG, manufacturers are being asked to pay electricity bills that could take them out of business.
“A company told me that it was paying N7-8m before, now it is paying N32m. The calculation is that the profit you could have made, you are not able to make it. So, you need to decide to go ahead and produce and pay an electricity bill that is more than the profit you would have made or shut down.
“So, we are gradually seeing a situation where more and more industries are shutting down, because if you disconnect an industry that does not have an alternative source of power, it practically goes out of business,” he declared.
While appearing before the NERC panel, the MAN DG acknowledged that DisCos were also business owners, stating, however, that the DisCos would survive with the new tariff while they would run out of business.
“We know that distribution companies are businessmen, and we are also businessmen, nobody will go into a business and try to make a loss. But what we are seeing in the increase is that the Discos are going to survive, and the manufacturers are going to die. It is not possible for manufacturers to take on this cost,” Ajayi-Kadiri argued.
However, the application by MAN to have the implementation of the tariff increase suspended was opposed by the power generation companies and the DisCos, which argued that it would lead to losses for them.
The Chairman of Sahara Energy, Kola Adesina, noted that over the years, Gencos had been at the receiving end of the liquidity challenges facing the electricity sector in the country.
“As producers of power, we are also directly affected by those variables we all talk about, including inflation rate, interest rate and exchange rate. But we do not have the room like the manufacturers have where their entire cost can be passed on to their pricing.
“For years, we were subsidising the power sector in Nigeria and till today, we are still doing the same thing,” Adesina stated
The Ibadan DisCo said that although the company was willing to make concessions to those with a payment plan, it would, however, continue to disconnect customers who refused to pay outright without explanation.
Experts speak
A Professor of Energy at the University of Lagos, Dayo Ayoade, maintained that manufacturers do not have the power to dictate what to pay for electricity.
According to Ayoade, the manufacturers should rather generate their electricity if the new tariff is unaffordable.
“Manufacturers have no such power to dictate tariffs. Consumers can either use DisCos or generate their own power,” Ayoade stated.
The don argued that it was more expensive to generate one’s power than to be on the national grid.
“Generating one’s power is easier said than done. It costs a lot to generate power. It is cheaper in most cases to use DisCos,” Ayoade noted.
The convener and Executive Director of PowerUp Nigeria, an electricity consumer rights and power sector policy advocacy organisation, Adetayo Adegbemle, said MAN did not have the power to take the DisCos to any court over the tariff reviews.
“In fact, this is an abuse of court processes, as all alternative dispute resolution within the sector has not been exhausted. Moreover, it is interesting that MAN who should be lobbying the DisCos to be their members is the one taking them to court. I also doubt if anyone could be telling MAN members how much to sell their products,” Adegbemle argued.
He submitted that MAN and its members should understand that the power sector was no longer a government business, but a regulated sector.
“They (MAN members) also have to understand that power comes at a cost, and because the government has chosen to reduce their subsidy on it has not made it a right.
“Going to court is ill-advised. The same MAN that complained about how much they spend on alternative energy is now kicking when they are to be enjoying a minimum of 20 hours of electricity per day. MAN has not been able to also demonstrate how much this minimum of 20 hours of power supply is saving them on alternative sources,” he emphasised.
However, an expert in the power sector, Bode Fadipe, maintained that the manufacturers may not be interested in fixing tariffs, saying the fight could be about adherence to procedure.
“I am sure the issue with MAN is not a case of whether they want to fix the tariff. They are fully aware of the fact that they are not in a position to determine the cost of selling electricity to them. What they may be fighting for is adherence to procedure as well as the issue of discrimination,” Fadipe noted.
Meanwhile, the tariff dispute between manufacturers and DisCos in Nigeria has highlighted the need for a balanced approach to tariff setting that takes into account the needs of both parties. While manufacturers require an affordable and reliable power supply to remain competitive, DisCos have to recover their costs and maintain profitability to invest in the power sector.
The insistence of manufacturers to dictate tariff rates and the refusal of DisCos to budge have created a stalemate that threatens the stability of the power sector.
A multi-stakeholder engagement involving manufacturers, DisCos, regulatory bodies, and government agencies is crucial to finding a mutually acceptable solution.
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