Interrogating claims of Nigeria’s expensive electricity tariff

Issues in the News

Adebayo Obajemu

There is much ado about what constitutes the right pricing of the electricity in the Nigerian Electricity Supply Industry, NESI. While, the Distribution Companies of Nigeria (DisCos), blame the challenge of poor delivery of electricity facing the sector on lack of cost-effective tariffs, consumers rights activists, consumers and labour unions are of the view that the current tariffs are higher, given the poor power supply situation in the country.

The impasse in these contrasting viewpoints continues to fester, as both hardened positions by what some observers called government’s prevarication and dilly-dally on the matter of right pricing.

According to the latest worldwide electricity pricing released by Cable UK, Nigeria ranks as the 121st country on the global chart with the highest electricity cost.

One can argue that this is average on a chart consisting of 230 countries, but on a closer inspection at Africa, Nigeria ranks as the 24th country with the highest electricity prices.

The Cable UK Electricity Chart examines electricity tariffs around the world and apportioned its ranking based on the average between the highest recorded electricity costs and the lowest.

The rates are in per kilowatt/hour (kWh) and include all charges and taxes found on an electrical bill. This includes distribution and energy costs as well as numerous environmental and fuel costs.

But many analysts and industry insiders spoken to by EnergyDay expressed the view that the issues are not what they seem. They noted that a lot of factors must be considered when rating electricity pricing and that it would be naive to say Nigeria’s electricity tariff is expensive, that such comparison doesn’t hold water.

Energy experts who spoke on the report listed variations in the operating environment as a critical factor that affects electricity price. They identified poor infrastructure, the expensive price of gas and other metrics as issues faced by the Nigerian operators whereas in other climes they argue, various low-cost means of generating electricity such as coal and renewables account for low tariff regimes; saying Nigeria’s tariff is based on the market dynamic.

Commenting, Professor Adele Dumoye, an eminent electrical engineer told EnergyDay that “in other countries where the tariff is cheaper they have a solid infrastructure and various means of generating electricity such as coal in China, but here we use gas, and you can see how expensive it is, the chorus has ever been a shortage of gas. So relative to the cost of acquiring gas the current tariff is not expensive.”

On his part, Pius Onasami of the Consumers Rights Action Plan told EnergyDay that “comparing our electricity tariff with other countries might seem tempting, but we must note that the socioeconomic variables are never the same in the countries under review. I think what we need to work on is for the government to build infrastructure, then we can hold the DisCos accountable. The privatization of the power sector was messy and we all knew that we are yet to recover from the mess.”

Investigations by EnergyDay have revealed that electricity tariffs have grown threefold in the last four years.

Between 2015 and 2019, the average electricity tariff jumped from N12 kWh to about N32kWh and was slated to go up again by about 30 percent in 2020 but the proposed increase is yet to commence perhaps due to opposition by labour or for reasons of political correctness.

The Nigerian Electricity Regulatory Commission (NERC) had in June 2015, came up with new electricity tariffs that became effective for commercial and industrial consumers from April 1, 2015.
The Commission also stated that the charges in its new order were in two parts. There was a fixed monthly charge and a charge for electricity consumption, the energy charge, which was measured in kiloWatt-hour.

Fixed charge was the component of the tariff that committed electricity consumers to pay an approved amount of money not minding whether electricity was consumed during the billing period or not.

The charges for residential consumers using single-phase or three-phase meters in category R2 were given.v

Regrettably, in spite of the increases in tariffs, Nigeria’s power generation has continued to hover between 3,500 megawatts and 4,000MW since the sector was officially privatized in November 2013.

The highest peak power generation ever attained in Nigeria was recorded on February 7, 2019, when the country’s power generations firms delivered 5,375Mw of electricity to the national grid.

However, power distributors, on the other hand, have been advocating for what they call a cost-reflective tariff to enable them have the required funds to expand their networks, an argument that consumers have always kicked against.

The Nigeria Electricity Consumers Advocacy Network, NECAN, and the Electricity Consumers Association of Nigeria, ECAN, accused NERC of failing to consult with stakeholders before putting together the recent increase in tariffs.

Chairman, NECAN, Tomi Akingbogun, and President, ECAN, Chijioke James, in a recent interview stated that the standard practice before any increase in tariff was for NERC to consult with stakeholders.

“We were not consulted before they (NERC) went ahead with the increase and this is against the standard procedure,” Akingbogun stated.

James said NERC failed to carry out proper consultations, adding that the service provided by power firms had not improved.

Atanda Amusa, professor of electrical engineering at Kogi State University told EnergyDay that “before we can apportion blame squarely to DisCos, we must have got our infrastructure right, then sort out other means of powering electricity apart from gas which is expensive. So if we begin to compare tariffs rates at different countries without considering the socio-economic context of the variations in pricing we may miss the point.
After all, it is Nigeria Electricity Regulatory Commission that fixes tariffs in consultation with the demands of DisCos.”

Similarly, Dr Olufemi Omoyele director of Entrepreneurship at Redeemers University told EnergyDay that “attempting to compare and rank electricity tariffs across African maybe not be too useful an exercise.

Recall that in June 2020, Electricity distribution companies in Nigeria (DisCos) accused the Nigerian government, especially NERC, of trying to dissociate itself from the July 1 increase in electricity tariff.

The DisCos said the increase in tariff and the commencement date were both approved by the NERC.

It was learnt that the tariff increase which was initially scheduled to commence on April 1 but was postponed.

A review of the new tariffs showed price increases would have ranged from 60 percent in places like Ikeja, to about 73 percent in Abuja, and about 78 percent in Enugu.

Many Nigerians have condemned the tariff increase, saying the electricity situation should get better first before an increase. Proponents, however, say the electricity situation cannot get better unless consumers pay appropriate prices for electricity and allow investors to make enough money to reinvest in their infrastructure.

In their statement then, the DisCos decried the alleged attempt by NERC to distance itself from the July 1 commencement of increase in electricity tariff.

The government, including power ministers, has, however, refused to join issues with ANED; saying it had no dealings with the association.

Their stance was made known in a statement issued by Sunday Oduntan, the Executive Director, Research and Advocacy, Association of Nigerian Electricity Distributors (ANED) in Abuja.

Oduntan stated then, “We are in a regulated sector. We cannot take a decision about a very critical aspect of the sector like tariff without a nod from the regulator (NERC).

“However, what has happened in recent days is that our regulator is warning us not to mention their name or the Federal Government in any of our communication about the tariff increase with our customers. This is certainly very unfair.”

“Many stakeholders have expressed their concern at the unusual silence of our regulator, NERC on the upcoming increase and it looks like a unilateral decision by the DisCos.

“We will like to inform Nigerians that tariff review (upward or downwards) is the primary responsibility of NERC as our regulator,” he said.

Mr Oduntan said that the DisCos were required to submit their proposals, adding that NERC had the final say

He said that the DisCos were surprised to receive a letter from NERC warning them not to mention their name or that of the federal government in any public communications on tariffs.

“While it is our obligation to communicate the increase, it is also important for customers to know that it is following standard processes of tariff adjustments in the sector with approvals from NERC and the Federal Government.

“As DisCos, we believe in the rule of law. We will only carry out lawful approval and instructions by our regulator.

“The proposed increase and the timing of the increase in tariffs was done by NERC. It is their statutory responsibility. DisCos alone cannot fix and approve electricity tariffs,” he said.

Some experts have also argued that Nigeria’s tariffs have historically been too low to cover the basic operating costs of producing the country’s electricity.

Nigeria’s Presidential Task Force on Power noted that ‘the revenues generated by very low electricity tariffs could not even cover the cost of producing and supplying power”.

In 2009, Prasad Tallapragada, a senior energy specialist and team leader in the World Bank’s Nigeria Energy Programme, noted that Nigeria had one of the lowest electricity tariffs in the world. The tariff of about 4.3 US cents/KWh had remained constant since 2002. But the low tariff, together with an absence of proper metering and low collection rates, meant that basic operating costs were not met. As a result, according to Tallapragada, there was a yearly revenue gap that was historically filled by government transfers.