Nigerians may need to brace up for tougher times as
electricity tariff is set to increase by over 40 per cent in the coming days, a
development which may eventually end all forms of energy subsidy in the
country.
With a monthly subsidy of about N50 billion still in the
electricity sector owing to revenue shortfall, the tariff hike due from July 1,
may be another acid test for the President Bola Ahmed Tinubu administration’s
market reform.
The administration has already removed subsidies on Premium
Motor Spirit (PMS) and floated the naira, decisions that have complicated the
price-setting of the Nigerian Electricity Regulatory Commission (NERC) 2022
Multi-Year Tariff Order (MYTO).
Although the power sector players have been unable to meet the threshold of supplying at least 5,000 megawatts a year after signing contracts with NERC, NERC’s current Service Based Tariff (SBT) was benchmarked on an exchange rate of N441/$ and inflation of 16.97 per cent.
Going by the NERC’s orders, in 2015, the average tariff
across distribution companies (DisCos) and classes of end-users was N25
kilowatt, in order of 198/2020, which came into effect on September 1, 2020.
The average tariff went to N60 per kilowatt; in the MYTO for 2022, the average
tariff was N64 across classes of customers.
The foreign exchange rate used in determining the 2015
tariff was N198.97/$, N383.80/$ was used in 2020, while N441.78/$ was used in
2022. The inflation used in the 2015 MYTO was 8.3 per cent, 12 per cent was
used in 2020 and 16.97 per cent in 2022.
Currently, the inflation rate is 22.41 per cent and some
experts have projected that it would hit 30 per cent by the end of June given
the floating of the naira and subsidy removal on PMS.
Coming as the metering gap remained at over seven million,
gas prices, losses and actual generation capacity are other elements in
determining the tariff.
While NERC’s projected tariff for July 2023 was expected to
remove subsidy and increase the previously frozen tariff band D and E,
increasing the bands from N54.59/kilowatt to N62.16 for band D and
N48.37/kilowatt to N61.16 on average with an average increase across the bands
moving to N67/kilowatt, the prevailing floating of the naira and spike in
inflation is projected to move the new average tariff to about N88/kilowatt for
the sector to recover the cost.
Most stakeholders told The Guardian that while the increase
is unavoidable due to the changes in the parameters, households and small businesses,
which should power the economy, may head for serious problems with energy costs
alone rising to over 70 per cent as purchasing power remains a challenge in the
face of unemployment and poverty.
At the time of filing this report, available electricity on
the grid stood at 3,057.7MW from 17 power plants. The average load intake of
all the DisCos in the last four months averaged 3,000MW, a development that
follows the persistent push to make the DisCos meet up with 100 per cent of
their remittance orders.
With the question of affordability emerging as a major
consideration as the grid remains unreliable, forcing it to make losses,
stakeholders have expressed fear that Nigerian Electricity Supply Market may
face tougher times managing outlook due to apathy that may come from consumers
who are losing hope in the system and resorting to alternative energy.
Energy expert, Prof Wunmi Iledare, said the restructuring of
the forex market creates worries as it appears as a devaluation of the naira,
adding that he’s not comfortable blaming subsidy removal and paying the right
tariff for decoupling Nigeria’s economy from forex instability.
According to him, people must support the government in its
effort to stop the dollarisation of its economy even if electricity tariff and
petroleum products prices rise to a not-too-comfortable market-clearing price.
Iledare, however, questioned the current energy pricing in
the country, adding that the PMS pricing which stayed after the NNPC
announcement is anticompetitive based on the dominant firm market structure.
“Price hike cannot just depend on forex in the electricity
market. Market fundamentals are key to rate determination in a decreasing cost
industry producing essential commodities, like power,” Iledare noted.
Energy lawyer, Madaki Ameh, said the never-ending upward
reviews of power tariffs have become some sort of blackmail on electricity
consumers and should be addressed through the Consumer Protection Council or an
organized body of electricity consumers.
“Indexing the cost of electricity on the dollar is a huge
mistake because most of the inputs for electricity supply are local. The DisCos
are also holding Nigerians to ransom by failing to increase the supply base,
thereby spreading the tariffs across a broader spectrum of consumers to reduce
the unit cost of electricity,” Ameh said.
He insisted that as long as there remain many unmetered
consumers and many others not connected to the grid at all, the few consumers
on the grid would continue to be subjected to unjust tariffs, which are not
reflective of the quality of service delivered.
Ameh hoped that the signing into law of the new Electricity
Act would mark “the beginning of light at the end of the long tunnel of
inefficient and epileptic power supply in Nigeria.”
President of Nigeria Consumer Protection Network, Kunle
Olubiyo stated that while the last major review of electricity tariff was
benchmarked at $1/N400, the floating of Naira and harmonisation of the exchange
rate put the exchange rate at about N750/$.
“It will affect the tariff template and result in an upward
review of electricity tariff.
“As important as this may be, two things are quite
imperative to help in achieving a win-win for the demand and supply side of the
coin.
Moving forward, governments through relevant regulatory
institutions should liberalize end users’ customers ‘ access to effective
metering and mass metering to help in drastically closing the ever-increasing
huge metering gaps,” Olubiyo said.
He asked the government to look into gas pricing and align
it with domestic gas obligations.
“Gas to power generation plants/ thermal plants should be
allowed to access gas which should be traded in local currency,” Olubiyo said.
Electricity Market Analyst, Lanre Elatuyi said the new
tariff rate would have an impact on the tariff, stressing that the “naira
devaluation is a big challenge to companies with dollar loans to pay,” a
development, which he said, would affect the power generators who have dollar
loans repayment obligations.
“They will need more naira today to buy a dollar. They need
to manage their exposure to foreign exchange risk. Even operators of hydro
plants pay their concession fees in dollars. So, wholesale electricity price
will be adjusted upward and this will get to the end users’ tariffs too,”
Elatuyi said.
Executive Director at PowerUp Initiatives For Electricity
Rights (PowerUp Nigeria) Adetayo Adegbemle said while increasing tariff appears
normal due to the prevailing situation, there is a need to review the whole
process and encourage basing the electricity tariff against the naira going
forward.
“We have seen changes in the review yardstick before, and
this could be an opportunity to review our tariff process,” he stated.
Former President of the Chartered Institute of Bankers of
Nigeria (CIBN) and professor of Economics at Babcock University, Segun Ajibola,
said there is still a disconnect between the cost of electricity and the value
exchange.
“Nigerians are still struggling to keep pace with the cost
of energy for business and household use. If the electricity tariff goes up as
envisaged, the question remains if there will be value for the quantum of
electricity so paid for.
“The truth remains that if electricity supply is constant,
of the right quantity and quality, the envisaged upward review in the tariff
will be gladly absorbed by the populace,” he said.
Ajibola disclosed that the positive multiplier effects of a
regular power supply in a country like Nigeria would more than compensate for
the anticipated increase in electricity tariff when the increase is compared
with the cost of alternative sources of energy to SMES, other businesses and
households.
He noted that in the long run, the costs of some of the
public infrastructures to the populace are expected to in the short run rise to
the peak, then flatten and decline subsequently.
“I believe the short-run pains of the higher cost of
hitherto subsidized public infrastructures will turn to long-run joy for the
generality of Nigerians with improved quality of management and accountability
in our government-owned suppliers of those services.
“The move to open up the production and supply of those
items and services such as fuel, electricity and transportation is designed, I
believe, to promote economic efficiency and accountability in making the
products and services available for the generality of Nigerians.
And if the current efforts at driving such public sector
accountability are sustained, which I believe the new administration has the
wherewithal to do, then Nigeria is on the march towards greater greatness,”
Ajibola said.
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