1. Nigerian Electricity Regulatory Commission IMPLEMENTING AN EFFECTIVE COST REFLECTIVE TARIFF Dr. Sam Amadi Chairman, Nigerian Electricity Regulatory Commission 7 th May 2012 Presidential Power Sector Workshop

2. Outline Achievements of MYTO 2 Other Relevant Milestones Barriers to effective implementation Proposed Solutions MYTO beyond 2012 Implementing the Tariff Increase 2

3. Achievements of MYTO 2 Each Disco has tariffs reflecting it uniqueness in terms of cost, location and customer profile The MoF has provided maximum subsidy of N50bn in 2012 and 2013 to be applied to residential customers (R1 & R2) only Cross subsidies from large R, C and D customers to small residential and commercial customers will ease transition to higher tariffs Tariff design has reduced customer classes from 19 to 14 and removed arbitrary charges (for clarity and transparency) A user-friendly financial model has been made publically available to the sector 3

4. Other Relevant Milestones Successful consultations have been held with internal (FG institutions) and external stakeholders The TCN Management Contract has been awarded Regulations for Embedded generation have been released (while those for Procurement of Power will be released by mid-2012) 4

5. Barriers to Effective Implementation Achieving and maintaining 5500MW gross generation in 2012 is utmost national priority Generation capacity is the main technical assumption underlying the tariff calculation The success of MYTO 2 depends on it Availability of gas supply Conclusion of TCN projects Poor NIPP project management: the chickens are coming home to roost 5

6. Generation in 2012 (FGN + IPP) Power PlantPlanned Output (MW)29-03-12 Output (MW) Shiroro600100 Jebba450197 Kainji380225 Egbin1320580 Afam IV & V24360 Delta33081 Geregu380153 Omotosho3040 Olorunshogo266136 Shell650421 Agip480408 AES240199 IPPs (Geometric, Notore, Rivers, Dangote, Ibom, Omoku, Trans- Amadi) 147+25+180+44+190+ 100+100= 453 0+0+0+0+56+28+14= 98 Total60562658 6

7. Proposed Solutions TCN – FG should give budgetary support to this sub-sector (since it will not be privatised) Downstream Gas – Greater clarity is needed (as exists in the power sector) via improved regulation framework; dedicated legislation; and greater transparency and separation of roles – A dedicated advisory body (such as the PTFP) should be created for downstream gas to fast-track reform with full Presidential support (possibly embedded in gas reform regulation) 7

8. Proposed Solutions NIPP – Timelines: Truthful assessment of how much power can be supplied in 2012 and focus on getting at least 1500MW to the grid by Q3 2012 – Removal of non-performing contractors – NDPHC Board to effect privatisation of all generation plants no later than mid-2013, but LTSAs for now Privatisation – Urgent Sale and handover of all thermal plants (especially Egbin) – PRGs for Gencos need to be ready for signing immediately after privatisation – Contract with Manitoba Hydro for TCN Management should be firmly but quickly negotiated and management team brought in swiftly 8

9. MYTO Beyond 2012 The achievement of projected generation capacity is essential throughout the 5-year MYTO 2 period One way to further ensure enough generation is to incentivise Oil & Gas firms to invest in power This can be done by extending the tax incentives that enabled the building of Okpai (Agip) and Afam VI (Shell) to all oil and gas E&P companies that are able to take advantage of them Nigeria cannot afford to ignore such obvious options 9

10. Implementing the Tariff Increase Conditions have been set for TCN and Disco licencees with regards to billing and commercial performance under MYTO 2 Communication Strategy for MYTO 2 – NERC has developed a strategy and has begun implementation – The EMIT has created a sub-committee on communication and political analysis (for the enforcement of new tariffs) of which NERC is a member DSS has been engaged 10

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