FG Approves New Electricity Tariff

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Sam Amadi

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The Nigerian Electricity Regulatory Commission has approved new electricity tariff for power consumers

By Anayo Ezugwu  |  Mar. 30, 2015 @ 01:00 GMT  |

Following series of complaints by electricity consumers in the country, the federal government on Tuesday, March 17, reduced electricity tariffs by 50 percent. The Nigerian Electricity Regulatory Commission, NERC, said it took the decision after it removed the collection loss component of the Multi Year Tariff Order 2.1 of the affected Discos. It explained that the reduction came barely two months after it cut the pump price of petrol by N10.

Sam Amadi, chairman, NERC, said the addition of the aggregate technical, commercial and collection losses to the reviewed tariff that was implemented on January 1, was responsible for the skyrocketed tariff. The addition, according to him, was done after the regulatory commission conducted a fact-finding tour of the Discos and noted that it was aimed at ensuring a cost reflective tariff by passing the bulk to paying consumers for losses incurred from non-paying consumers.

He said although the increment in residential tariff was pending till June 2015, the total removal of the collection loss applied to all consumer categories, including industrial and commercial consumers. He noted that energy charges vary from one Disco to another. In Abuja, for instance, residential consumers, based on the MYTO 2.1, pay N4 per kilowatt hour, while the amount charged commercial customers, depending on their respective category, range from N23.32 to N37.68 per KWH. Fixed charges for most residential consumers is between N650 and N750 while energy charge has an average of about N4 for every KWH. With the new directive, it therefore means that the energy charge, which forms the larger part of the tariff paid by customers when computed by Discos, will be reduced by half.

Amadi said the commission listened to consumers and took full account of the impact of high tariff paid by consumers and the   economy and therefore reviewed the basis of the MYTO 2.1 assumptions. He explained that after the review, it was agreed that it was inappropriate to transfer the collection losses that were controllable by Discos to consumers. “It is the responsibility of the Discos to collect their revenue from their customers. Failure to do so should not be a penalty to customers who pay their bills. It is clear that removing the collection losses will lead to lower tariffs for consumers. The removal of collection losses from customer tariff has reduced tariff by more than 50 per cent in some places. Please note that the reduction does not affect the Central Bank of Nigeria facility and its repayment.”

Since January 1, when NERC approved the MYTO 2.1, there had been several complaints against the increase in tariff of different consumer classes. Industrial and commercial consumers under the auspices of the Manufacturers Association of Nigeria, MAN, petitioned the commission asking for a review of the MYTO 2.1 and requested drastic reduction of their tariff.

MAN had stated that such astronomical increase in tariff was capable of killing their business and leading to massive job losses. The association also threatened to shut down its factories if NERC failed to revert to the rate that was obtainable before the announcement of   the astronomical increase which took effect on January 1, 2015.

Amadi explained that the Electric Power Sector Reform Act and the Business Rules of the commission mandated NERC to review its decision if a complaint by an interested party had merit. He added that pursuant to these rules, the commission organised public hearing and received evidence from different consumer classes on the affordability of the new tariff. “The commission also invited the chief executive officers of the Discos to the hearing to respond to the case of the consumer groups. Furthermore, the commission reviewed the technical and financial assumption of MYTO 2.1.

“The review shows that the major underlying cause of the skyrocketing increase in the tariff is the huge ATC&C losses, which are passed through to consumers. In some Discos, ATC&C losses increased tariff by as much as 80 to 103 percent. Therefore, on Monday, March 9, 2015 the commission issued a new order to the effect that henceforth collection loss, which is defined as the ‘amount billed but not collected’, will not be automatically passed on to consumers of electricity. Consequently, the collection loss for all Discos is set at zero. It is now the responsibility of Discos to convince the regulator of any exceptional circumstances for such loss to be passed to the consumers,” he said.

The NERC boss added that the new direction came as part of the commencement of the Transitional Electricity Market, TEM. TEM is built on bilateral trading between parties and is geared towards ensuring an efficient market where cost reflectivity will lead to more affordable electric services for consumers. Amadi further explained that as part of preparations for TEM, NERC had issued a tariff review regulation that required the utilities to consult with relevant consumer classes before presenting a tariff review application to the commission for approval.

Chinedu Nebo, minister of power, during Power Nigeria 2014 Conference in Lagos, March 9, ruled out any increase in electricity tariff until power supply increases.  “We don’t want to see any increase in tariff until power generation and distribution increase, because people want to see electricity. We are talking of megawatts; the person in the village doesn’t care about megawatts. What he or she cares about is electricity. There will be adjustment if electricity stabilises and it is stabilising, and if we are able to go beyond what we are doing now, and it will in the next couple of months. And then, we will look at the whole thing and see what cost is reflective enough. We just want a measurable tariff that will give a little bit of comfort to investors so that they can recoup their investments, make a little profit and continue to expand. But nobody is in a hurry to adjust the tariff at this moment,” he said.

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