NERC Implements N1463.3/$ FX Rate for Band A Electricity Customers, Raising Concern Over the Sustainability of Naira Gains

The Nigerian Electricity Regulatory Commission (NERC) has implemented an exchange rate of N1463.3/$ in calculating the new electricity tariff for Band A consumers as part of the recent electricity tariff review.

This decision, outlined in the revised Multi-Year Tariff Order (MYTO) sent to all 11 electricity distribution companies (DisCos) across the country in 2024, reflects a significant increase compared to previous rates.

The exchange rate applied in the reviewed order marks a considerable rise from earlier calculations, notably surpassing the figure of N919.38/$ recorded in January. This difference of N543.92 underscores the impact of fluctuations in the foreign exchange market on tariff adjustments.

The surge in prices is attributed to ongoing fluctuations in the foreign exchange market since the beginning of the year, with the Nigerian naira experiencing a sharp decline. By March, the naira reached as high as N1800 in the parallel market. However, recent weeks have seen a notable recovery, with the naira dropping to below N1300 in the parallel market, largely due to reforms implemented by the Central Bank of Nigeria (CBN).

CBN’s reforms include raising the interest rate to 24.75%, providing foreign exchange to Bureaux de Change (BDCs) at a set rate, and imposing restrictions on international oil companies to limit their immediate repatriation of 100% of foreign exchange earnings.

In addition to the exchange rate adjustment, NERC has incorporated the new domestic gas price of $2.42/MMBTU, set by the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA), into the updated electricity tariff calculation for Band A consumers.

This decision follows NERC’s earlier announcement of increasing the electricity tariff for Band A consumers from N68/KWh to N225 per Kilowatt-hour. Notably, this hike affects approximately 15% of total electricity consumers in the country who enjoy around 20 hours of electricity daily.

Before NERC’s tariff increase for Band A consumers, the NMDPRA had raised the base price for domestic gas supply to power companies nationwide from $2.19/MMBTU to $2.42/MMBTU, further contributing to the adjustments in electricity tariffs.

However, NERC capping electricity tariff calculation at N1463.3/$ is seen as a sign that recent naira gains at the FX market are not sustainable. Financial experts had earlier warned of indications that the central bank wouldn’t be able to maintain FX supplies to the BDCs, which has been instrumental to the naira’s appreciation, for long.

“Why celebrate “strong” Naira and then use weak Naira to do government business?,” Kalu Aja asked. “So you are paying higher power tariffs because of weak naira? Why not use $1: N900?”

Other government agencies, including the Nigerian Customs Service, have also been observed using exchange rates higher than what is obtainable in (NAFEM) Nigeria’s official FX window.