Amidst the trying times, Nigerians will need to face an uphill in the coming days as the country’s electricity bill is expected to climb by nearly 40 percent as of July 1, a precursor to the eventual elimination of all energy subsidies. The power sector still receives a monthly subsidy of roughly N50 billion due to revenue shortage and this is seen as another valorous decision taken by the President Bola Ahmed Tinubu administration for market reform. The administration’s removal of PMS subsidies and the floatation of the naira have complicated price-setting for the Nigerian Electricity Regulatory Commission’s (NERC) 2022 Multi-Year Tariff Order (MYTO).
NERC’s current Service Based Tariff (SBT) was benchmarked on an exchange rate of N441 and inflation of 16.97%, despite the fact that power sector operators have failed to reach the criteria of supplying at least 5,000 megawatts per year after signing contracts with NERC. According to NERC order 198/2020, which went into effect on September 1, 2020, the average tariff for all distribution firms (DisCos) and classes of end-users in 2015 was N25 kilowatt. In the MYTO for 2022, the average tariff across all customer classes was N64 per kilowatt; this has now decreased to N60.
Cost of energy in Nigeria is rising at an alarming rate.
However, the current 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, despite NERC’s projections that it will remove subsidies and increase the previously frozen tariff B and D and E. Majority of stakeholders revealed to the press that while the increase is inevitable due to changes in the parameters, households and small businesses, which ought to power the economy, could be primed for serious problems with energy costs alone rising to over 70%.
With the grid’s prolonged unreliability leading to mounting debt, the Nigerian electricity supply market may have faced greater challenges than usual controlling its future trajectory. According to Segun Ajibola, a professor of economics at Babcock University and a former president of the Chartered Institute of Bankers of Nigeria (CIBN), the cost of energy for commercial and residential usage in Nigeria is rising at an alarming rate. If the proposed increase in electricity prices goes through, the concern remains whether the electricity purchased will be worthwhile. People would gladly accept the tariff hike if the electrical supply is reliable, adequate, he added.
DisCos are extorting Nigerians by not expanding the supply base.
Energy lawyer, Madaki Ameh, said the frequent increases in energy tariffs amount to a kind of pressure against electricity users and should be addressed by the Consumer Protection Council or some other group representing those users. He argued that majority of the inputs used in energy generation are sourced domestically, making it a bad idea to index electricity prices to the dollar. The DisCos, he said, are also extorting the Nigerian people by not expanding the supply base and distributing the rates across a larger number of customers to lower the unit cost of electricity.
He stated that the few users on the grid would continue to be subjected to unreasonable prices that did not represent the quality of service given so long as there were many unmetered consumers and many more not connected to the grid at all. Ameh was optimistic that the passage of the new Electricity Act would finally bring an end to Nigeria’s inefficient and erratic power supply. Kunle Olubiyo, president of the Nigeria Consumer Protection Network, has predicted that this will lead to an increase in electricity rates and a corresponding revision of the tariff template.
Increase in tariff seems normal given the current situation.
To help severely close the ever-increasing large metering gaps, Olubiyo advised governments to liberalize end users’ consumers’ access to effective metering and mass metering through relevant regulatory organizations. Adetayo Adegbemle, executive director of PowerUp Initiatives For Electricity Rights (PowerUp Nigeria), said that while an increase in tariff seems normal given the current situation, there is a need to review the entire process, including the tariff and promote basing the electricity tariff against the naira going forward.