Metropole Magazine

 
Today's Weather: Abuja NG: Partly Cloudy, Day 360|Night 260

            
15 Feb Written by  Waziri Adio

Interrogating Labour's Protests against Hike in Electricity Tariff

Last Monday, organised labour made good on the threat to ground the country in protests against the latest hike in electricity tariff. If anyone was in doubt about the capacity of the labour unions to pull out their members en mass, to make common cause with natural and unnatural allies, to appropriate the mandate to speak for the "masses" or the entire populace, and to fancy having a veto power of sorts, such a person should have a rethink by now. The country wasn't  exactly grounded by this first wave of protests. But judged by the sheer number of participants and their success in eliciting a pandering to the gallery from the Senate, it was a good outing for the unions and their civil society allies. But nothing could be more wrong-headed.

The unions and their supporters gave a number of reasons for their protests. One, the hike was done without proper consultation. Two, the hike will negatively impact individuals and businesses in the country.  Three, emphasis should be put on improving electricity supply first before any price hike. Four, electricity consumers should be billed for actual, not estimated, consumption. Five, the buyers of the electricity generation companies (GENCOs) and the distribution companies (DISCOs) are incompetent, exploitative and over-pampered by the sector regulator, the Nigerian Electricity Regulatory Commission (NERC), and the government. And six, the privatisation of the electricity sector should be reversed.

While some of these claims might be valid and legitimate, the overall approach is neither. More importantly, the rhetoric of the unions is problematic and potentially counter-productive and dangerous. Two quotes from the protests will illustrate this possibility. Comrade Boboye Kaigama, President of the Trade Union Congress (TUC), said: "If NERC cannot do its work, organised labour will. It is our collective wealth. If they (NERC) are conniving with the DISCOs and the GENCOs to deprive Nigerians of electricity, it is a right not a privilege. If the tariff is not reversed, we are prepared to take over the DISCOs."

On his part, Dr. Dipo Fashina, a former President of the Academic Staff Union of Universities (ASUU), was quoted as saying the 2013 privatisation of electricity companies was a violation of the Nigerian Constitution! "We want the Senate to reverse the tariff immediately," he said. But he wasn't done: "apart from that, the Senate must protect the poor. Majority of Nigerians cannot afford the evil that is going on. Stand out and reverse all the privatisation of all our roads, airlines, Ajaokuta Steel..."

In a short pace, protests about tariff hike have mutated into a platform for resolving all grouses, whether legitimate or not. There is a real and present danger that the unions and their present and future supporters might be emboldened to further force the issue beyond threatening to prevent others from undertaking their legitimate businesses, take over private entities, usurp the functions of a statutory agency, and advocate the reversal of all forms of privatisation in the country. Where will they stop? The unions are about railroading the country into slippery slope that can only lead to anarchy and retrogression. And this is why it is very important not only to interrogate the protests but also to checkmate this dangerous slide.

To start with, it must be clearly stated that the right to protest is a democratic right. But having that right does not necessarily make its exercise or the cause of protest right. Democracy, at its core, is about processes. There is an established process for making inputs into tariff-setting and seeking redress about tariff increase. According to the business rules of NERC, tariff-setting is done in consultation with the operators and the consumers. When the GENCOs and DISCOs submitted applications for tariff hike in June 2015, NERC asked them to engage with their consumers. NERC still went ahead to do its own consultations before approving the new tariff on 19 December 2015.


Those opposed to the tariff hike had the opportunity to engage with the process and contest the various components of the tariff and how they were calculated. They did not. It is possible that the consultations were not widely communicated or that they were held at a time not convenient for most. But it is more useful to insist on the right to be consulted while the process was on than to insist on holding everyone else to ransom after the fact. Also, NERC has a provision for those unhappy with change in tariff to seek redress within 60 days. The unions have not explored this provision to make a fact-based, rather than an emotional case for why they think the tariffs should be reduced or reversed. To be sure, protests could be a negotiating tool. But given how disruptive and costly protests can be, they should be used as a last resort, not as the first.

The second issue is the hypocrisy of the unions in calling for reversal of the privatisation of the GENCOs and the DISCOs on account of tariff hike or non-improvement in power supply. Privatisation of the electricity companies is actually one of the best things done by the last administration. This doesn't mean the exercise was perfect or that questions cannot be asked or that the privatisation has yielded outcomes comparable to the telecoms' privatisation. Far from it. But the thing to do is to seek ways for constant improvement rather than call for a return to government ownership. If government had been such an efficient provider of utilities and manager of businesses, there wouldn't have been the need for privatisation in the first place.

Equally important is the not-so-small fact that while the privatisation was going on, labour unions were more interested in getting hefty compensations for their members. It is said the bulk of the about $4 billion the government made from the sale of GENCOs and DISCOs went into compensating 47,000 electricity workers under the aegis of the National Union of Electricity Employees (NUEE). You cannot support privatisation, cash out handsomely at our collective expense and then turn around one day to canvass that it should be upturned. Talk about the tyranny of a vocal minority and an abuse of veto power.

The third issue is the constant reference to our "collective wealth" and "rights" when talking about the electricity companies and the unfortunate resort to trade union tactics to prevent price change. It is true that the government still has some interests in those companies. But the majority stakes now belong to the private owners. So the argument about collective wealth is outdated by at least two years. I am yet to see where it is written that it the right of citizens to have electricity supplied to them at a particular price. Yes, electricity has serious implication for the welfare and productivity of the individual, the survival of businesses, and progress of our country as a whole. But electricity has always been a private good (even though it has strong externalities) and, with privatisation, it has been privately produced since November 2013.
Dissatisfaction over the price of a private good, no matter how strategic and important such a good is, does not by any stretch constitute a trade or industrial dispute. Food and raw materials are as important to individuals and businesses as electricity is, if not more important. When the prices of those go up, are the unions going to call for street protests too and who are they going to threaten this time? Clearly, the unions and their supporters need to cure themselves of both their unhelpful sense of entitlement and the hangover of a period when electricity was solely provided and subsidised by the government. 


The fourth issue is how the increase will negatively impact the masses and businesses. On the surface, this is a sound argument. Let's face it, an increase of between 45% to 65% in electricity charges will increase inflation, reduce the standards of living of those on fixed incomes, and increase the cost of doing business. But as sound as this argument is, it misses or understates certain points. The first is that electricity from the grid, even at the new tariff, is still about 50% cheaper than the self-generated one, which everyone (including the poor) has been forced to adopt due to the mutually reinforcing incidence of unsustainably low tariffs and low investments in the sector. Apart from the costs of hardware and maintenance and implication for health and safety, electricity generated from diesel costs N47.7/kwh and the one from petrol costs N46.3/kwh, according to a 2012 study by H.U. Ugwu et al., published in the Nigerian Journal of Technology (Vol. 31, No 2). More recent studies put the cost of self-generation much higher.


If asked to choose between electricity from the grid at the new rate and self-generated power, most Nigerians, including the poor on behalf of whom the unions claim to be protesting, will not hesitate to choose the convenience, the safety and the cheaper cost of the former. It is possible that the union has that contradicts this assertion but my sense is that their data is the assumed mandate to choose and speak for the rest of us. The freedom to protest and the freedom to choose are both rights, one is not higher than the other, and no one has the right to choose for others without their consent. Also, the camouflage of protesting because of the poor is punctured by the fact that there is lifeline tariff and it remains unchanged at N4/kwh across distribution areas for those classified as R1 customers.


It is also important to bear in mind that like other goods, electricity has a cost of production and according to the model used by NERC, the tariff is regulated because the sector is given to natural monopoly and the tariff is periodically adjusted to changes in exchange rate, inflation rate and cost of gas. If the cost of production changes, the price must change, except government is prepared to subsidise. It is possible to query the costs and the necessity of the expenses claimed by the companies. But that must be done on the basis of facts and knowledge, not just from a we-no-go-gree or aluta mindset.


The argument that tariff hike should be preceded by improved supply goes back to the chicken-and-egg issue. Yes, operators should have enough to invest for service improvement, but the fact is that electricity supply can only improve when there is more investment and investment (even from soft loan from the central bank) can only happen when there is a good chance of cost recovery. If electricity consumers want regular and ultimately cheaper supply from the grid, they must be ready to pay for it. The story of telecoms has shown us that overtime cost will come down and this is borne out by NERC's Multi-Year-Tariff-Order (MYTO 2), which indicates that tariff for R2 customers in the Abuja distribution area, for example, will decrease from N24.30/kwh in 2016 to N20.40 in 2019 and then to N19.25 by 2024.


I think the only solid argument made by the protesters is that consumers should pay only for what they consume, not what the DISCOs think they should get from them. The way out of this is to ensure that all electricity consumers are metered. And when consumers are metered, they can adjust to price hike by controlling their consumption and adopting energy-saving practices. But the DISCOs prefer estimated billing, which allows them to recover as much as possible of what they call Aggregate Technical, Commercial and Collection (ATC&C) losses. What this translates to is that consumers get fixed bills every month, irrespective of their consumption level and irrespective of whether they have electricity or not. That is grossly unfair.

As part of measures to correct this, NERC once came up with the Credited Advance Payment Metering Implementation (CAPMI), which allows customers who can afford it to give a loan to their DISCOs to provide meters to them within a timeframe and get reimbursed overtime and with interests. Despite that, many customers subscribed to this scheme, the DISCOs have not metered them. Instead of resisting a price that is still cheaper than its alternatives, it is more productive to fight institutionalised exploitation in the form of estimated billings and insist that NERC should enforce its own rules. And even those can be achieved only by going through the established process and working the system from a position of facts and knowledge, not through street protests or wrong-headed threats. 

Comments:

blog comments powered by Disqus