“This tariff review is in conformity with our policy thrust of maintaining a subsidized pricing regime in the short run, with a transition plan to achieve a full cost-reflective tariff over a period of, let us say three years.” – Nigeria’s Minister of Power, Adebayo Adelabu.
It looks scary but what the Honourable Minister is trying to do is actually what should be done. I understand the emotions and his non-elegant way of explaining things (an example: asking people to switch off freezers to save energy cost), but the path he is taking is the right one. Many do not pay electricity bills in Nigeria even as they complain of no electricity. So, besides reflective tariff, we must ensure we also improve collections.
Our challenge as a nation is how to make the rich pay their fair share. In America (feel free to attack me for bringing comparison), those in the cities pay more for phone bills than those in the rural areas. Their model is that if you do not subsidize the low density rural areas with the revenue from the high density city areas, no person can afford rural telephony.
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If you apply that in Nigeria, Eti Osa LGA cannot be on the same rate as Epe on electricity rates, just like Oriendu Market Ovim traders cannot pay the same rate as Ariaria Aba traders. It is our lack of the use of data that makes our governance system inefficient.
I just want to caution the Honourable Minister, you cannot phase out electricity tariff; it would be a bad policy. What you can do is to phase out all for commercial customers, modulate for some residential customers especially in rural areas, but sustain subsidy for industrial customers to make them globally competitive as energy is a huge component of production.
For industrial customers, if a $100m subsidy helps to improve output by $15 billion, when you tax that output and activity associated with it, you can recover that $100m. But if a high tariff makes their products so expensive that the only option is Chinese products, Nigeria loses. Always remember that whenever Nigerian Customs beats annual revenue targets on import duties, we are de-industrializing Nigeria; reverse that for us.
In a move that could potentially impact millions of Nigerians, the Nigerian government has hinted at extending the recent increase in electricity tariffs to customers beyond the Band A classification.
The announcement came just two days after the Nigerian Electricity Regulatory Commission (NERC) approved the tariff hike for Band A customers.
During a briefing held in Abuja on Friday, the Minister of Power, Adebayo Adelabu, outlined the government’s plan to gradually phase out electricity subsidies in the country. He described the recent tariff increase as a pilot phase in this transition process, aimed at attracting more investment into the power sector.
"This tariff review is in conformity with our policy thrust of maintaining a subsidized pricing regime in the short run, with a transition plan to achieve a full cost-reflective tariff over a period of, let us say three years." – Nigeria's Minister of Power, Adebayo Adelabu.
It… pic.twitter.com/p0tN6tQuHy
— Ndubuisi Ekekwe (@ndekekwe) April 6, 2024
Nigeria Hints at Further Electricity Tariff Increase, Emphasizes Phasing Out Subsidy
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Is the new N225/kwh still a subsidized rate? If yes, how competitive is this new rate? If you model with minimal consumption of 1kwh, for 20 hours a day, you are looking at N4500. This brings you to around N135k monthly. This is for let’s a 2-bedroom flat. The annual rate is over N1.5 million. Will the investors find enough customers at this level to recoup the investment? Once we remove capacity to pay from the equation, everything will crumble.
It seems like the 15% of the consumers are meant to carry pretty much the entire energy bill in Nigeria. Is this really sustainable? Are we assuming that there are enough millionaires and billionaires within this premium 15% in Band A that could keep everything going? And what happens if they seek alternative energy sources thereby depleting the revenues of DISCOs? It is one thing to preach what is realistic, but it is another to guarantee that there’s enough staying power to go all the way.
Those who are promised 20 hours of electricity daily and they are not getting it, but the new tariff was premised on that, who then accounts for what and how will disenfranchised consumers be compensated? There are many nuances, we just need to work out something sustainable and less problematic.