• The new tariff has a significant impact on poor Nigerians who were previously subsidized.
• Stakeholders are divided over calls to reverse power privatization.
Four months after the Federal Government and the Nigerian Electricity Regulatory Commission (NERC) quietly ordered the removal of electricity subsidies and increased end-user tariffs, orders released yesterday by the regulator have raised new concerns, as poor Nigerians are now heavily burdened by tariff increases.
Six power distribution companies (DisCos) received NERC approval to raise tariffs yesterday. The new tariff went into effect in February 2022, according to a document signed by Sanusi Garba, NERC chairman, and Musiliu Oseni, vice chairman, on December 29, 2021.
The six DisCos approved by NERC are Port Harcourt Electricity Distribution Company (PHEDC), Jos Electricity Distribution Company (JEDC), Kano Electricity Distribution Company (KEDC), Kaduna Electricity Distribution Company (KEDC), Ikeja Electricity Distribution Company (IKEDC), and Ibadan Electricity Distribution Company (IBEDC).
Gas price, inflation, exchange rate, US inflation rate, and available generation capacity are among the indices considered by NERC for the tariff increase.
It was also stated that these indices would be reviewed every six months in order to update tariffs with changes in the indices as applicable in accordance with the multi-year tariff order (MYTO).
While the new tariff has a two to five naira increase for consumers in bands A to C, the previously frozen bands D and E, which the Federal Government claimed was subsidized to alleviate the burden on poor Nigerians, now have a N5 increase.
This comes just a few days after NERC openly defended DisCos, claiming that they have been hampered by inflation, foreign exchange issues, and insecurity, resulting in an inability to collect revenue.
Some stakeholders lamented yesterday that the tariff adjustment confirms earlier rumors that NERC had quietly increased end-user tariffs, which they see as a deception for the regulator to have approved and implemented the tariff increase since February but only published it in May.
Industry players also expressed concern that, despite the tariff increase, Nigerians would resort to using generators due to insufficient power supply.
President Muhammadu Buhari vehemently defended the Service-Based Tariff (SBT) increase in electricity tariffs in September 2020, emphasizing that it is the only way to improve power supply to the masses.
This SBT divided electricity consumers into supply bands ranging from A to E. End users in tariff band A must have 20 hours of electricity supply per day; consumers in tariff band B must have at least 16 hours of supply; 12 hours for those in tariff band C, eight hours for those in tariff band D, and at least four hours daily for those in tariff band E.
Unfortunately, most stakeholders believe that statistics did not support the principle, as electricity generation capacity continued to decline while consumers were frequently thrown into darkness due to the national grid’s persistent failure.
The prevailing principle has been described as an injustice by the majority of industry players and consumer rights groups, with some already requesting that the government cancel the 2013 privatisation, which sold assets of the public electricity market to private hands.
According to some consumer rights advocates, the power sector is still heavily reliant on borrowing, donor funding, and government funds, and is surviving solely on the sweat of end-users, who have had to make continuous monetary contributions under community development to acquire electricity transformers, poles, wires, and other necessary services in privately-owned distribution companies.
To complicate things, the national electricity grid has collapsed more than 140 times in the last eight years, despite over $1.6 billion in investment from donor funds and borrowings from the World Bank and the African Development Bank.
While the Federal Government has spent approximately N1.7 trillion on the sector, with plans to spend an additional $3 billion, Power Minister Abubakar Aliyu previously admitted that the quality of service in terms of hours of supply, voltage, disputed/estimated bills, or having no access to electricity remained poor.
Rumundaka Wonodi, the pioneer Managing Director of the Nigerian Bulk Electricity Trading Company Plc (NBET), stated that while prevailing economic realities may cause tariffs to rise, it is of grave concern that the increase is not delivering the service levels contemplated in service-based tariffs.
“Many of the clusters barely see supply hours in whichever tariff band they are assigned to.” Consider the following scenario: the supply to the grid has been poor in recent months, resulting in reduced hours of supply to all tariff bands, including band A, yet the tariff has remained unchanged.
“The DisCos rightly claim that they are not responsible for the recent decrease in supply, but it is not for consumers to foot the bill because, at the same time, consumers must make up for it with self-generation at a time when diesel prices are through the roof,” Wonodi said.
According to him, even before the recent supply squeeze, many tariff band consumers had complained that supply had not been consistent with their respective tariff bands.
While consumer groups have called for the privatization to be reversed, Wonodi has stated that such calls would be counter-productive, and that what was required was for the regulator to crack down on non-performing players.
According to him, NERC and the Bureau of Public Enterprise (BPE) should be empowered and encouraged to remove non-performing investors from each entity, whether DisCos or generating companies (GenCos).
“Again, a thorough reversal of privatization will be costly in terms of time and resources.” Finally, the call for reversal stymies capital injection. “Any successor company seeking to raise debt or equity will face a higher hurdle when there is a consistent call for the privatisation to be reversed,” Wonodi said.
Adetayo Adegbemle, consumer advocate and convener of PowerUp Nigeria, stated, “I don’t blame all those calling for a reversal of privatization, though I still don’t see it as the way forward.”
Yemi Oke, a professor of energy law at Lagos State University (LASU), believes that increasing tariffs will never solve the power sector’s problems, and that fundamental issues will continue to plague the sector.
“You can continue to adjust tariffs; at some point, it will make no sense to use DisCos for power because other options will become more affordable.” The final change was based on a better power supply. “That has not occurred,” Oke stated.
While the change may make sense for commercial customers who use diesel, he believes the average household will struggle, and that industrial users may resort to embedded generation because no serious manufacturer would rely on DisCos.
Kunle Olubiyo, a legal practitioner and consumer rights advocate, stated that the reversal of the privatisation exercise remained the only option in the face of the power sector’s continued poor performance, adding that improving the sector may remain a mirage if the government sticks to the current investors.
According to him, consumers are being shortchanged, and the industry has been mechanically fleecing customers through suspicious rogue meters.
While the change may make sense for commercial customers who use diesel, he believes the average household will struggle, and that industrial users may resort to embedded generation because no serious manufacturer would rely on DisCos.
Kunle Olubiyo, a legal practitioner and consumer rights advocate, stated that the reversal of the privatisation exercise remained the only option in the face of the power sector’s continued poor performance, adding that improving the sector may remain a mirage if the government sticks to the current investors.
According to him, consumers are being shortchanged, and the industry has been mechanically fleecing customers through suspicious rogue meters.
