March 1, 2024

Let cost reflective tariff be: why Labour should let go


Energyday Editorial

There have been lots of discourses back and forth on the merits and demerits of the federal government’s planned removal of subsidy on electricity.

The argument ranges from the purely uninformed and mundane angst of the ordinary people who do not understand the issue, to the enlightened position of stakeholders and those who actually understand the issues at play, and are in support of the removal.

For us at EnergyDay, we are convinced that removal of electricity subsidy is for the good of all. We’re optimistic that the idea if properly managed, on the long run, the Nigerian Electricity Supply Industry (NESI), electricity consumers and the economy as a whole will be better for it.

The Federal Government sometime in July this year, hinted of the plan to end the subsidy payments in the electricity sector estimated at N30 billion monthly.

Unveiling the government’s position, Vice President Yemi Osinbajo, while speaking at the opening of the 14th Nigerian Association for Energy Economics/IAEE conference in Abuja said the government expected the electricity sector to generate its revenue from the power sector market.

However, some stakeholders believed that government is persuaded into taking the decision due to pressure from the World Bank and it’s Western allies. But the question is does it matter where the advice come from if the end product is for the good of all?

Truely, the International Monetary Fund (IMF) had advised the Nigerian government to completely remove fuel and electricity subsidies in early 2022. The Washington-based organisation described the program as, “retrogressive” fuel and electricity subsidies, hence suggested that they should be considered a priority as part of the government’s fiscal policy.

The advice came as part of its preliminary findings at the end of its official staff visit to the country under the Article IV Mission. IMF also called for reforms in the fiscal, exchange rate, trade and governance aspects of Nigeria.

“The complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor. The mission stressed the need to fully remove fuel subsidies and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act. In addition, the implementation of cost-reflective electricity tariffs as of January 2022 should not be delayed. Well-targeted social assistance will be needed to cushion any negative impacts on the poor particularly in light of still elevated inflation,” the report stated.

By implication, the PIA has already confirmed subsidy removal as a priority for unlocking the potentials of the sector.

Indeed, it’s an economic fact that subsidy payment on consumption negates the spirit of deregulation and unbundling of the electricity sector. Therefore, for efficiency sake, it should go. It’s an inconvenient truth, and it would amount to playing the ostrich if we continue in the game of self denial.

Our position as a newspaper is that government should muster enough political will to do the needful by removing this bottlenecks called subsidy. The logic of this is not a rocket science, as nothing best exemplifies the beauty of this than what happened when telecommunications was deregulated.
Initially, it was briefly costly but today, even the market women in the village have their mobile phones.

We appeal to the Organised Labour, who are already rattling their Sabre, and threatening the government with thunder and brimstone should the later goes ahead to remove the subsidy to sheathe their sword.

Our fear and apprehension is the tendency on the part of the Nigeria Labour Congress to always toe the populist line and the road that mostly would emotionally appeal to the masses even when they understand the issues, and as such should have explained to their members and the Nigerians the merit of a removal.

Labour should understand that treating issues based on merit is better than playing to the gallery, neither labour nor government has shown enough competence in managing busineess.

There was a time in this country when Labour floated mass transit. What has happened to it?

Much of the struggle which they undertake supposedly on behalf of workers and masses always end up being betrayed for lucre, and this calls in question the sincerity of labour as an advocate of welfare of workers.

The N30 billion monthly on subsidy could be used to build infrastructure and purchase mass transit to cushion the effects of the initial shock of the removal of subsidy.

Stakeholders and informed Nigerians have long canvassed for a removal.

Many stakeholders have actually identified cost-reflective and service-reflective tariffs, as critical reforms needed to guarantee sustainable and available electricity in Nigeria.

This is widely seen as one of the measures that would attract investment flows into the power sector.

At the 12th edition of PwC Nigeria’s annual Power and Utilities Roundtable, focusing on the theme, “Sustainable power supply in Nigeria – What next? Gaining perspectives from Ghana and South Africa”, it was widely canvassed that electricity subsidy should go to open up the sector for quality Investments inflow.

Discussants at the panel session of the roundtable, submitted that the Nigerian power sector value chain has been held back by a lack of investment since, the privatization of the power sector in 2013. They blame it on the absence of cost-reflective tariffs which could have helped to address the financing constraint of infrastructure facing the distribution and transmission sub-sector.

The stakeholders expressed optimism in the federal government’s plan to carry out Extraordinary Review of Transmission Company of Nigeria’s Loss Factor (TLF) in the Multi-Year Tariff Order (MYTO), and the processes for the review of MYTO by December, 2021.

We’re convinced that those in support of the subsidy removal are not doing so solely for their selfish interest but facing the fact that it is the way capitalism strives.

We therefore call on labour to support the government and shelve the idea of industrial action on the matter, instead it should negotiate with the government on the measures to cushion the effects of the removal.

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