Maduka University

NERC may okay tariff hike as electricity subsidy hits N2.8tn

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There are strong indications the Federal Government may consider the request by power distribution companies for a review of their tariff, as the government spending on electricity subsidy has risen to N2.8tn.

A new report by the Nigerian Electricity Regulatory Commission, obtained by our correspondent in Abuja on Sunday, indicated that past hikes in electricity tariffs by Discos saved the government from paying additional N1tn in subsidy to power firms annually.

The July 2023 NERC report was titled, ‘Overview of the Nigeria Electricity Supply Industry.’

Providing an update on the country’s tariff review journey, the commission stated that “between January 2020 and January 2023, tariff increased from 55 per cent of cost recovery to 94 per cent.

It added, “Without the tariff reviews that commenced in 2019, subsidies payable by the government would have grown to about N1tn per annum by 2023. Service-Based Tariff was instrumental in the transition to cost-reflective levels.”

On subsidy payable, the NERC stated that subsidy (tariff shortfall) paid by the Federal Government between 2015 and 2022 rose to N2.8tn in December last year.

It added that between January and April this year, subsidy on electricity gulped N57bn, adding that the Service-Based Tariff scheme help in reducing the amount spent by the government on power subsidies.

“Annual subsidy reduced from N528bn in 2019 to N144bn in 2022. Subsidy in 2023 year-to-date (January to April 2023) stood at N57bn.

“Service-Based Tariff was instrumental to the reduction of tariff subsidy. The financial burden of tariff subsidies between 2015 and 2022 stood at NGN2.8tn,” the NERC stated.

The yearly hikes in power tariffs by the Federal Government through the NERC have been targeted at ending subsidies on electricity.

On Friday 11 power distribution companies in Nigeria had applied for the review of electricity tariffs so as to incorporate the changes in Nigeria’s macroeconomic parameters.

The report stated that the NERC disclosed this in a notice, as it said the Discos stated that their reasons for the rate review were premised on factors affecting the quality of service, operations and sustainability of the companies.

Meanwhile, some power distribution companies had announced on Sunday, June 25, 2023, that there would be a hike in tariff, projected to take effect from July 1, 2023.

The Discos, however, backtracked the next day after widespread criticisms, as they stated that the Nigerian Electricity Regulatory Commission had yet to approve the hike.

The development caused apprehension among power users at the time, as many prepaid consumers rushed to buy more electricity units in their meters, while anticipating a possible hike in tariff.

It was, however, observed on Saturday, being July 1, 2023, that the Discos did not raise the tariff, an indication that they had yet to get the approval of the power sector regulator.

But in the regulator’s notice, as contained in The PUNCH’s report on Friday, it said, “Pursuant to Section 116 (1) and 2(a&b) of the Electricity Act 2023 and other extant rules, the 11 successor electricity distribution companies have filed an application for rate review with the Nigerian Electricity Regulatory Commission.

“The request for rate review is premised on the need to incorporate changes in macroeconomic parameters and other factors affecting the quality of service, operations and sustainability of the companies.”

However, speaking on the requests by Discos for tariff, on Sunday, a senior official at the NERC stated that the commission would ask the power firms to further state why they were bent on having a hike in tariff during the proposed meeting.

“If you study their (Discos) Performance Improvement Plan, the number of transformers they are supposed to buy, did they buy it? And what is the justification for this increase they are asking for?

“How many transformers, lines, meters, etc, are they bringing on? How many customers are they going to migrate from four hours to eight hours, from eight hours to 10 hours, etc?

“These are the justification for rate increase. Although they may likely argue about the increase in foreign exchange rates, but they should know that the price of gas has reduced.

“So, they will need to let us know some of these things,” the NERC official, who pleaded not to be named, due to lack of authorisation, stated.

In the notice published on the NERC website, the commission invited “the general public for comments on the rate review applications by the distribution licensees.”

It stated that “interested stakeholders are advised to review and take into consideration the excerpts of the rate review applications filed with the commission by the respective licensees.”

‘Subsidies should stop’
Commenting on the development, energy economists stated that it was high time that all forms of subsidy on energy energy were stopped by the Federal Government.

“Energy is holistic. It is not like what we have done in the past, which is to treat petroleum and oil as very different from electricity, and to talk about energy and power and not talk about it in a holistic sense.

“So any country that is successful in this area is dealing with energy as a whole and recognising that the hydrocarbons are so useful and important because they are sources of energy.

“So when talking about electricity and trying to divorce it from the rest, you’re going to fail,” the President, Nigeria Association for Energy Economics, Prof. Yinka Omorogbe, stated.

She explained that electricity should not be treated like an elite product, stressing that it served as a commodity for everyone in any country, adding that “everybody has a right to electricity.

Consumers oppose hike
However, power consumers said they were opposed to any move by the government or Discos to hike tariffs, stressing that subsidy on electricity should remain, since subsidy on Premium Motor Spirit, popularly called petrol, was removed in May.

“Nigerians have not been able to cope with the fuel subsidy removal that was done recently and you are talking of power tariff review. Petrol sells for N540/litre in Abuja. It sells for N600 and above in parts of Calabar, Rivers and Bayelsa, and you talking about power tariff hike?

“Nobody is comfortable. Nigerians are not comfortable. Nobody will accept this kind of rise in energy cost. If the Federal Government will re-introduce the policy of paying the market shortfalls, then it will be better for consumers.

“Because if they go the way they are going, it will be disastrous, for we heard that some Discos are asking for as high as N300 per unit of electricity,” the National Secretary, Nigeria Electricity Consumer Advocacy Network, Uket Obonga, told our correspondent.

He said though tariff review should be based on the service delivered to consumers, the Discos were neither delivering nor implementing capital projects as they promised.

Obonga said, “The NERC that is now going about sending notices, does it have a mechanism in place to measure the hours of electricity supplied by the Discos? How do they measure it? Apart from that, when you say Service-Based Tariff, it is not only tied to time, in terms of the number of hours of supply?

“It is equally tied to the quality of electricity supply. Now, who measures the quality of electricity supplied to Nigerians? There is also the issue of CAPEX, capital expenditure. We still have cases where the Discos are no longer involved in metering, rather they push the meters through Meter Asset Provider agents to sell and collect money.

“Their Vesting Contracts on CAPEX and others, are they keeping to it? Are you aware that for evey tariff rate there is a percentage that goes for CAPEX for the Discos? Are they really executing capital projects?”

The NECAN official went ahead to ask, “Have you seen it in any report of NERC where it is stated clearly that the Discos executed considerable amount of capital projects for which they had earlier demanded for an increase in tariff?

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