Electricity tariff hike suicide for ordinary folks, death sentence for businesses!

Ilenre Irele

The federal government through the Nigerian Electricity Regulatory Commission (NERC) skyrocketed the electricity prices to N225/KWh for consumers in the category of Band A.

This to many customers is a grim report they didn’t want to hear and is contained in a press statement by the Vice Chairman of NERC Musliu Oseni on Wednesday.

Oseni said that these customers stand for 15% of the nation’s 12 million electricity consumers.

He averred that because the required electricity supply hours were not met, the commission shifted some customers from Band A to Band B.

“The order takes effect from today and in that order the commission has approved a rate review of N225 per killowatt hour for just under 15% of the customer population in NESI.
“That means that less than 15% of the customers will be affected,” Oseni announced.
He, however, said that the review would not impact customers in the other Bands.

According to the regulatory agency, the development is expected to cut down the subsidy for the fiscal year 2024 by approximately N1.14 trillion.

Oseni stated that the federal government has shown intentions of transitioning to a targeted subsidy regime to alleviate the effects of macroeconomic changes.

” With the newly approved tariffs, subsidies for the 2024 fiscal year are expected to reduce by about NGN1.14 trillion in furtherance of the Federal Government’s realignment of the subsidy regime.
” While largely protecting vulnerable customers and fostering investments targeted at providing efficient service delivery in the Nigerian Electricity Supply Industry (NESI).
” The overarching objective of the commission in the consideration of the tariff application is the creation of a financially sustainable electricity market providing adequate and reliable power supply to drive the Nigerian economy.
” The commission, upon due consideration of the tariff applications, has approved revised rates affecting only customers classified under Band Serv category which is about 15 per cent of the customer population,” he said.
Process of Tariff Review
Furthermore, Oseni explained that the commission undertook a detailed assessment of the tariff proposals submitted by the 11 Electricity Distribution Companies (DisCos), adhering to its established regulations and business rules.

He said that before the review process, there was an examination of the performance improvement plans of the licensees, which also encompassed a public hearing.

During this hearing, stakeholders and interveners scrutinized the rate filing presented by the public utilities.

Oseni said that empirical service data had confirmed that this class of customers had truly received the committed level of service.

He added that a mechanism for enforcement and compensation has been set up to address service failures.

” All DisCos have been provided with mandatory targets for investments and migration of more customers to Band.
” The commission has established a robust monitoring framework leveraging on technology to ensure that the public has visibility of the service covenant with their service providers.
” We wish to assure all Nigerians that the commission working in collaboration with the policymakers remains committed towards providing adequate and reliable electricity to all citizens.
” This is as we work diligently with state governments to deliver on the gains of the Electricity Act 2023,” Oseni added.

Electricity tariffs are the rate at which electricity is sold to a consumer. These tariffs are determined by considering total production costs from generation plants to wholesale generation, transmission, distribution, metering and billing and finally to the consumer. Nigerian electricity tariffs are typically regulated by the government or The Nigerian Electricity Regulatory Commission (NERC) to ensure fairness, sustainability, and the financial viability of the power sector.

Professor Aminu Abdullah an energy expert said that ” the 300 percent increase is too much even for Band A, despite the fact that there’s a need for price adjustment for efficiency.”

“Electricity is the bedrock of civilization, providing energy for our homes, businesses, and industries. However, the accessibility and affordability of electricity have always posed significant concerns for both consumers and policymakers. One of the critical factors influencing the electricity tariff set by utility companies is the electricity subsidy which the government pays to upset a part of this tariff costs making it affordable to its citizens.

“However, recently the government has expressed its inability to continue subsidizing electricity due to severe financial and revenue constraints. As a result, Distribution Companies (DisCos) have proposed a 40% electricity tariff increase from July 1, 2023. But that could not hold because of lack of political will. Other contributing factors to this proposed increase are the fuel subsidy removal and the unified exchange rate.

Dr.Olufemi Omoyele, an analyst said that though there’s need for tariff hike but to raise to over 300 is not justified by services rendered and the material condition of both individuals and struggling entities.

Since Wednesday when the announcement of tariff hike was made,the development has become a subject of intense debate and discussion. Therefore, there is a need to outline the possible implications of this proposed tariff increase in varying sectors. Some of the impacts are as follows:

Impact on Consumers: An increase in electricity rates directly affects the consumer’s pockets, as higher rates translate into increased monthly bills, especially with already skyrocketed bills from the fuel subsidy removal. According to the National Bureau of Statistics (NBS), 40.1% of Nigerians are classified as poor. As such, many households in Nigeria, especially those in rural areas, are low-income households with limited disposable income, and the burden of higher electricity costs can be particularly challenging. In addition, the increased financial strain on consumers’ income can lead to reduced discretionary expenses, affecting local businesses and the overall economy.

Impact on Businesses: All businesses heavily rely on electricity to function optimally. This means that a spike in electricity tariffs directly impacts operational and production costs, reducing profitability and competitiveness. Energy-intensive industries, such as manufacturing, mining, and hospitality services, may experience significant challenges when tariffs spiral. Higher electricity costs may compel businesses to cut back on operations, reduce staff, or pass on the increased expenses to consumers through higher prices, ultimately impacting the purchasing power of the general population.

Renewable Energy Adoption: Globally, countries are making efforts towards transitioning to cleaner energy sources to curtail the adverse effects of climate change on the planet and reduce dependence on fossil fuels. The tariff spike may cause people to seek alternative energy sources, thus promoting renewable adoption and providing the much-needed boost needed to help Nigeria realize its 2030 goals and the Energy Transition Plan.

Attracting Investments: For the NESI, the increase in electricity tariff seems like a giant leap towards achieving cost-reflective tariffs. For several years the electricity value chain has suffered losses, with DisCos being unable to meet their financial obligations. Achieving cost-reflective tariffs instils confidence in the minds of investors and intending investors, and it demonstrates that investors can recoup profits from their investments.

The electricity tariff increase will impact varying sectors and stakeholders negatively and positively. Therefore, these predicted impacts present a difficult task for policymakers to strike a balance between the requirement for a power sector that is financially sustainable with affordable energy.

The hike has elicited strong opposition from both manufacturers and organized labour. The Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) stated their collective disapproval, emphasizing the potential negative outcomes for the economy. They argue the increased cost will cripple manufacturers, exacerbate inflation, and stifle the growth of small and medium enterprises (SMEs). Additionally, they raise concerns about the actual availability of the promised 20-hour daily power supply, questioning its existence anywhere in Nigeria.

Omoyele said the 20- hour daily power is a mirage, where in Nigeria do we have that, they are just using that as part of justification for this unfair increase.”

The Tinubu administration continue to rationalize the tariff hike by citing the unsustainable nature of electricity subsidies. NERC Vice Chairman Musiliu Oseni explained the need to curb the projected N2.9 trillion expenditure on power subsidies for 2024.

In his own reaction, Dr Muda Yusuf
CEO Centre for the Promotion of Private Enterprise, CPPE noted that “the power sector issue has become a major conundrum in the economy. There is a major funding and liquidity crisis which is posing significant risk to investments in the electricity value chain. Costs across the chain have been rising as a result of the multiple macroeconomic headwinds.

” Meanwhile, the system is not generating the desired liquidity to match the escalating costs. Tariff review is thus an inevitability. And there is a limit to the subsidy burden the government can continue to bear.
But a 300% increase in one fell swoop is difficult to justify.
But it is noteworthy that the increase is not across board as only 15% of electricity consumers are affected. And this is targeting the segment with the highest ability to pay. This reflects some attributes of equity in pricing.

“But some fundamental issues need to be addressed in the electricity value chain. There are issues of technical and commercial losses which are yet to be addressed. These are inefficiencies costs that consumers are compelled or expected to pay for as part of the cost recovery argument. And these costs are in billions of naira. There is also the exploitative practice of estimated billing. Millions of electricity consumers are yet to be metered.

“There is the problem of over centralization of the power supply through the national grid model. There are capacity issues with some of the electricity Distribution Companies , contributing to the lapses in electricity delivery outcomes.
The energy mix programme is yet to gain an impressive traction.
It is important to fix these fundamental issues in the power sector. Fiscal policy measures should be immediately deployed to reduce costs across the entire electricity value chain.

Meanwhile, Nigerians who spoke with EnergyDay on the matter say the Tinubu administration is bent on creating social unrest given its resolve to implement IMF prescriptions which are the reasons for the current sufferings and hardships Nigerians are going through.
James Adewale, a furniture maker said ” I never thought that this government will go this far in manufacturing suffering for the electorate! How can you increase tariff by 300 percent even for the so-called Band A? It’s inhuman and sheer wickedness especially at this time.
His view reflects that of Janet Afolabi, a hairstylist who said ” this hike may be the final blow to kill local businesses in a bid to satisfy DISCOs at the expense of the people. Coming at the time prices of basic commodities have hit the rooftop is wicked.

Though many experts admitted that the announcement has shifted mild subsidy to poor customers, while the affluent will pay full price of electricity.
” Though it’s too much, but I want to believe that the poor people are not affected, it’s the rich who enjoy 20- hour of electricity that are being made to pay for the electricity they enjoy”, Professor Ayo Omoniwa told EnergyDay.