Nigeria’s 78% Electricity Tariff Increment and the Burden of Darkness

The Nigerian Electricity Regulatory Commission (NERC) has said that electricity billing will be increased in April this year. The decision was made in December 31st during the regulator’s Minor Review of Multi-Year Tariff Order 2015 and Minimum Remittance Order for the year 2020.

The order is to take effect from January 1st for 11 DisCos (distributing companies), and in April, for the rest of the DisCos. It was said to be issued to reflect the impact of changes in the minor review variables in the determination of cost-reflective tariffs and relevant tariffs and market shortfalls for 2019 and 2020.

Statement released by the Commission disclosed that the order also involves the minimum remittances payable by the DisCos in meeting their market obligations based on the allowed tariffs, which will run until 2021. The DisCos are required also to settle their market invoices to reflect applicable tariff shortfalls.

“The Federal Government’s Updated Power Sector Recovery Program does not envisage an immediate increase in end-user tariffs until 1st April 2020 and a transition to full cost reflectivity by end of 2021. In the interim, the Federal Government has committed to funding the revenue gap arising from the difference between cost-reflective tariffs determined by the commission and the actual end-user tariffs payable by customers.

“All FGN intervention from the financing plan of the PSRP for funding tariff shortfall shall be applied through NBET and the market operator to ensure 100 percent settlement of invoices issued by market participants.

“Effectively, this order places a freeze on the tariffs of TCN and administrative charges until April 2020 at the rates applied in generating MO invoices for the period of January to October 2019.”

For Abuja DisCo, customers ought to pay average N54.3 per kilowatt hour (KWH) as cost reflective tariff effective January 1, 2020.

However, NERC said it should continue collecting N32.7. Hence, Residential 2 (R2) customers’ bill remains at N24.30/kwh till April when the PRSP stipulates a hike. But it must remit 42% as payment for monthly bulk energy to the Nigerian Bulk Electricity Trading Plc (NBET).

Benin DisCo customers will pay average N32.5/kwh instead of the new N56.4 cost reflective amount. Residential customers will continue to pay N31.26/kwh and it must remit 35.7% for bulk energy henceforth.

In Lagos, Ikeja DisCo customers ought to pay N44.6/kwh but are allowed to pay N27.3/kwh for now by NERC. While its Residential customers continue to pay N21.30/kwh, the DisCo must remit 49% bulk energy payment.

For Eko DisCo, customers will pay N28.3/kwh average instead of N47.0/kwh cost reflective amount. Residential customers will continue to pay N24/kwh and it must remit 43% bulk energy settlement to NBET.

Kano DisCo, customers should pay N52.7/kwh average but are allowed to pay N30.1/kwh. The DisCos collects N22.50/kwh from Residential customers now and must pay 38% of its monthly bulk energy bill.

Enugu DisCo averagely collects N35.3/kwh from customers instead of N54.4/kwh. Residential customers pay N30.93/kwh and the DisCo must pay 42% monthly bulk energy invoice to NBET. For Yola DisCo, customers will pay N57.4/kwh in future but are presently allowed to pay N26.8/kwh. It bills Residential customers N23.25/kwh and it must pay 12% of its monthly energy invoice or face sanctions.

NERC said the order was pursuant to Section 32 and 76 of the Electric Power Sector Reform Act aimed at providing cost reflective tariffs that ensures prices charged by licensees are fair to consumers.

According to Premium Times, such prices are supposed to be sufficient for licensees to operate efficiently to recover the full costs of their activities, including reasonable returns on the capital invested in the business.

In issuing the order, Section 17 of the MYTO 2015 expects that changes in the variables in the economy outside the control of DISCOs, including inflation rates, foreign exchange rates, gas prices and available electricity generation capacity will be taken into consideration.

NERC said the new order updates was based on actual changes in macroeconomic variables in generation capacity as at October 31, 2019, including inflation rate of 11.3 percent for January to October 2019.

The order was also based on exchange rates of N306.9 plus one percent premium which is about N309.97 to the dollar and gas price of $2.50 per million metric tons BTU and gas transportation cost of $0.80 per MMBTU

Basic assumptions that guided the review included exchange rate of N310, generation cost of N23 per kWh, transmission cost of N7.8 per kWh, transmission and admin cost of N3.99 per kWh.

The Commission said it will hold DisCos responsible and ensure that they accountably comply with the remittance order.

“In the determination for compliance to the minimum remittance threshold in this Order, the Commission shall consider verified receivables from MDAs (ministries, departments and agencies) for the settlement period and DISCos’ historical collection efficiency for MDAs.

“The commission shall hold the TCN (Transmission Company of Nigeria) responsible for deviation from the economic dispatch order that adversely impact on the base weighted average cost of the wholesale of energy.”

However the 78% increment has aroused outrage among consumers who said they are being charged for services not rendered. In Enugu, where the hike is notably more exorbitant, considering that most consumers fall on the residential category, there is a tendency of a faceoff between the DisCo and consumers.

At the center of controversy trailing the upward review of the electricity tariff is the fact that only about 2 million consumers use prepaid meters. So the rest who are going to be placed on estimated billing will likely pay higher than the stipulated price.