Nigeria Government Plans to Increase Electricity Tariff Again

Fri, Jan 27, 2017
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Featured, Power

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The Nigerian Electricity Regulatory Commission proposes new electricity tariff which legislators kick against

By Anayo Ezugwu  |  Feb 6, 2017 @ 01:00 GMT  |

THE Nigerian Electricity Regulatory Commission, NERC, is contemplating another increase in electricity tariff. This much was made obvious when it said recently that without an increase in electricity tariff the power firms will not be able to provide steady power supply in the country.

Despite the epileptic power supply in the country, the NERC had on February 1, 2016, increased the electricity tariff to an average of 40 percent covering residential, commercial, industrial, special and street lighting classes.  For instance, the tariff for Abuja residential consumers was increased by N9.60kwh in their energy charges, with that of Eko and Ikeja electricity distribution consumers witnessed N10kwh and N8kwh increase respectively. For Kaduna and Benin residential consumers, increments of N11.05kwh and N9.26kwh were added to their energy charges, respectively.

The 10-year tariff regime (2016-2024) approved by the NERC, which took effect from February 1, 2016, had generated debates and reactions amongst Nigerians. Analysts, labour leaders, legislators, and electricity consumers across the nation have continued to demand for metering of every home by the Discos but this has not happening.

At the Senate Committee on Privatisation, on Wednesday, January 25, Tony Akah, acting chairman, NERC, said there was no miracle that the commission could do to ensure steady power supply, stressing that this was particularly due to the liquidity problem in the sector.

To address the financial shortfall, he said a cost-reflective tariff or subsidy must be provided for operators in the power business. Akah stated that the power regulator in Ghana, increased the country’s electricity tariff after a new technology was acquired and that since then, the power situation there had improved.

“So, the challenge we have as regulator here is that we don’t know which other miracle to do because in the absence of subsidy coming in, in the absence of other mechanism coming in, we are bound under the law to provide a tariff that will recover the cost of investments. And in the absence of that, there is no incentive for the players in the market to come up and give you power.”

According to Akah, the destruction of gas pipelines is also causing a huge loss to the power sector, as the financial performances of many electricity firms had been badly affected due to this menace. “I always say that private players are there to provide services and at the same time make a fair return on investment.

“This is fair return on investment either via the right tariff, or tariff that is highly subsidised by the government, or through other incentives that can reduce the cost of investment. This can be through gas, tax holidays and many more. But I know that the federal government at this point in time is considering various options to see how it can mitigate any possible rate hike.”

Akah stated that the petroleum sector was still enjoying subsidy and that it would not be out of place if an all-important industry like power was allowed to enjoy similar benefits from the government. “If we can have subsidy in the petroleum sector even up till today why can’t we figure out a mechanism to support the power sector?”

He noted that the major trigger to the liquidity problem in the power sector was foreign exchange scarcity occasioned by the fall in the value of the naira against the United States dollar. He said most of the facilities in the power sector were imported, adding that the current tariff was no longer suitable for the industry.

Akah advocated cheap bonds to be provided for the power firms to forestall the passage of high electricity bills to consumers, particularly when the firms borrowed high interest loans from Deposit Money Banks. He, however, noted that the commission would always protect the interest of consumers and that it had commenced work on policies that would ensure the sale of electricity to willing customers as a result of complaints that some power distribution companies were rejecting electricity load allocated to them.

But the committee rejected the proposal of the regulatory agency, saying that any increase now will be counterproductive. Rejecting calls for increased tariff and subsidy, Senator Ben Murray-Bruce, chairman, Senate Committee on Privatisation, said most salary earners in Nigeria had not had their wages increased in the past one year, yet the power firms were calling for 200 percent hike in rates because of forex challenges and inflation.

“But the same factors affect me as a businessman; they are not exclusive to the power sector. I’ve not been able to increase my rates but I’ve been able to survive. So also many other businesses in Nigeria,” he said.

The committee also called for the issuance of licences to more power investors in order to break the monopoly of the current operators, and insisted that the government should not provide any form of subsidy to the sector.

Nonetheless, the federal government had on Monday, January 9, assured Nigerians that it will not approve a fresh electricity tariff hike at least for now. It stated that it is still meeting with stakeholders in the country’s electricity sector, including the World Bank to provide some level of interventions to the market.

Speaking on Channels Television Talk Show, Sunrise Daily, which Realnews monitored, Babatunde Fashola, minister of power, works and housing, said the government was meeting with the World Bank to find solutions to the financial challenges of the power sector.  Fashola, however, said if the government’s deliberations with the World Bank on the financial challenges of the market end well, Nigerians would be protected from a possible electricity price hike.

Rather than finding the best strategy to increase power supply, meter the consumers and end estimated billing, the NERC in conjunction with the federal government is proposing for a new electricity tariff. Peradventure the NERC succeed in increasing the electricity tariff, it is the electricity consumers, most of whom are not metered that will suffer for the increase.

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