… Seeks Short-Term Tax Breaks For DISCOS To Cushion High Operating Cost Impact
The Institute of Chartered Accountants of Nigeria has called on the Federal Government to defer the implementation of a rate increase in electricity tariff to a future period.
The Institute in its reaction to the plan to increase the electricity tariff said it’s recommendation was based on the current economic situation, which haf made life unbearable for the people.
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The President of ICAN, Mr Innocent Okwuosa in the recommendation said since Nigerians are still grappling with the effect of macroeconomic policy decisions such as the removal of petrol subsidy and unification of the foreign exchange rates, the proposed increases at this time would further worsen the plight of the masses and push more Nigerians into multi- dimensional poverty.
Specifically, the ICAN President stated that the increase would significantly increase the cost of doing business, particularly for SMEs as 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.
The recent application to increase the price of electricity amidst the overwhelming series of policy resets made by the new administration such as removal of petroleum subsidy which had left an over 100 per cent increase in petrol price and the unification of all segments of the Nigerian forex market, has raised different criticisms due to its timing and increased undesirable ripple effects on the common man.
This price review is in accordance with the bi-annual review process as entrenched in the Multi-Year Tariff Order (MYTO) to reflect the current realities in the macroeconomic space.
The Institute also urged the government and the Nigeria Electricity Regulatory Commission to consider additional short-term tax breaks and other incentives to the Distribution Companies as a form of production-focused subsidy (rather than consumption-focused subsidy), as an alternative to rate hike.
The Discos, it added, would however need to demonstrate better accountability and transparency in governance and reporting, noting that this is an area in which chartered accountants can provide valuable support.
ICAN also urged the Discos to invest further in their distribution network to reduce technical losses and build a platform for sustainable electricity distribution.
The Institute stated further that non-payment of electricity bills by government entities, security challenges, energy theft, and payment apathy; changes in market conditions such as fuel prices, generation costs, infrastructure investments, exchange rates, as well as low recovery of actual costs incurred by the Discos in providing reliable power supply are some of the challenges that need to be addressed.
Others are difficulty experienced by Discos in revenue recovery as a result of delivering a significant portion of energy to high-loss rural feeders in security-challenged areas, inability to achieve mass metering of consumers, leading to estimating billing, loss of revenue and energy theft.
It said, “Our review of their application indicated that there are some areas requiring further consideration and disclosure. 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.
“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.
“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.
It said, “Our members possess the expertise and experience to support the Commission and Discos in providing deep insights on the inputs, market conditions and assumptions related to the proposed price increases.
“The Institute of Chartered Accountants of Nigeria stands ready and offers its support to the Commission in its efforts to ensure transparency, fairness, and accountability in the electricity sector.”