Hike of Electricity Tariffs

The Nigerian Electricity Regulatory Commission (NERC) has approved new electricity tariffs for distribution companies (Discos) operating in Nigeria. This is to enable Discos recoup the cost of electricity supplied to consumers. The commission made this known in a publication tagged ‘‘2016-2018 minor review of the 2015 Multi-Year Tariff Order (MYTO) for each Disco.’’  Based on the review, the tariffs now range from between N4 and  N60 per kilowatt  for residential houses across classes.

According to the NERC, ‘‘The objectives of this Order are to reflect the impact of changes in the Minor Review Variables for the period 2016-2018 to determine the cost-reflective tariffs for the relevant years and to ascertain revenue shortfalls in view of the differential between such tariffs and allowed tariffs in the Nigerian Electricity Supply Industry (NESI).’’

It would be recalled that in 2018, DisCos claimed they incurred huge losses as they bought electricity at N80.88 per kilowatt and sold to customers at N31.50 kilowatt, recording a shortfall of 49.38 per kilowatt. In view of this experience, DisCos have been calling for an upward review of electricity tariffs in the last two years. Going by MYTO regime, there is supposed to be a review (upward or downward) of tariffs every six months. The last review took place in December 2015. From the date of the last review till now, there is supposed to have been, at least, tariff reviews six times.

The variables at play in tariff reviews include the following: foreign exchange rate or the value of the naira against the US dollar; the price of gas in the international market (gas is used in generating electricity); power generation by Gencos, whether it rises or falls; and inflation rate. Since 2015, these indices have been on the rise. Therefore, over the last three years, NERC has been under pressure to approve increase in tariffs. But it did not for fear of labour’s reaction and the backlash from the public ahead of the 2019 elections. Perhaps, NERC has approved the new tariff because the elections have come and gone. It is feared that as from now, electricity tariff hikes could become a constant feature.

Unfortunately, it will be difficult for NERC to approve what is called cost-reflective tariff because Nigerians will resist it as a result of service inefficiency on the part of Discos. The new increase of the tariff from N24 per kilowatt to about N31 per kilowatt (for most customers in Abuja) gives a marginal increase of N6 per kilowatt. However, the supposed low tariffs for residential areas in rural communities (R1) has not been implemented by any of the 11 Discos. Rural areas are without electricity, while those who have been connected to the national grid pay heavy electricity bills, called estimated billing system. This is contrary to the agreement on tariffs, which says urban residents (R2) pay high tariffs in order to supplement the low tariff which those in rural areas should pay. We call on NERC to address this insincerity on the part of Discos as it approves tariff increases.

NERC has said losses incurred by Discos is one of the reasons for the new tariff hike. But this problem is partly self-inflicted. The losses are incurred because most electricity consumers have not been supplied with metres. If pre-paid metres are installed, it will be easier to collect electricity bills. Even for those who have had electricity metres installed in their facilities, service delivery by Discos is still dismal. This is a major challenge for the regulatory agency.

Apart from the lack of metres, electricity facilities, like high tension wires, poles and transformers should be put in good condition. This should be addressed. Till date, the presence of DisCos is not felt in rural areas. We, therefore, call on NERC and Discos to put their house in order before increasing tariffs.  Nigerians would not mind paying for electricity consumed, if they get value for their money.