Electricity Tariff: Can Nigerians Cope with Another Hike? by Rahma Oladosu

To say that the times are hard for many Nigerians is obvious. Still struggling to cope with the removal of the fuel subsidy, another policy review induced-hardship will soon be visited on them.

This time around, it is by the 11 Electricity Distribution Companies, DisCos, who have apparently concluded plans to hike the electricity tariff. A newspaper over the weekend revealed the ‘sinister plot’ of the DisCos, with this screaming headline: “NERC May Okay Tariff Hike As Electricity Subsidy Hits N2.8tn”.

While the text of the published report reads: “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”.

Checks by Economic Confidential revealed that the power distribution companies had already applied for the review of electricity tariffs. But this is with a view for them to also adjust to Nigeria’s macroeconomic parameters. While the DisCos have the right to push for an upward review of electricity tariff, it is apt that they work on their rate/quantity of power supply to consumers, mostly Nigerian households and businesses.

In recent years, electricity consumers have borne the brunt of the arbitrary hikes in price of energy, with an incommensurate amount of supplied electricity by the DisCos. The power crisis is one that Nigeria, as a nation, is battling to contain since 1999. Lack or erratic power supply has suffocated many small businesses in the country, who mostly rely on constant power to thrive.

Though the plan by the DisCos to raise the electricity tariff is yet to concretize, the question begging for an answer is: can Nigerians cope with another hike, especially in this post-subsidy era, where life has gradually become brutish, short and nasty for them?

At the moment, many power consumers have opposed the move by the government or Discos to hike tariffs. According to them, subsidy on electricity should remain, since subsidy on Premium Motor Spirit, popularly called petrol, was removed in May.

One of them, Uket Obonga, the National Secretary, Nigeria Electricity Consumer Advocacy Network, in a recent media interview, said: “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”.

He said though tariff reviews 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?”

In the same vein, the Director General of the Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadir, said a 40 per cent tariff increase at this time would engender higher production costs, lower profit margins, manufacturing activities paralysis, and lower revenue remittances to the government, among others.

He stated that the absence of a stable, effective and fairly priced electricity supply in Nigeria had been a long-standing challenge for manufacturers, which compelled them to supplement with alternative energy sources.

Regrettably, he noted that the available alternative energy sources, such as diesel, had become exorbitantly expensive.

“A spike in the electricity tariff will erode the profit margin of the manufacturers and reduce their ability to expand operations and create new jobs.

“Manufacturers will ultimately pass on the additional cost to the consumers of their products, and this will increase the cost of the products in the market and complicate the rising inflation rate in the country.

“Also, the sector’s competitiveness will definitely worsen as the high cost of the products will make locally produced items less competitive when compared with imported alternatives,” he told the News Agency of Nigeria (NAN) in an interview, recently.

However, an energy expert and Managing Director/CEO at New Hampshire Capital, Odion Omonfoman, said the price review is necessary for investors to recoup their investments.

Omonfoman, in a report published by Daily Trust, stated that with the new economic reality in the country, it is either the government subsidized electricity or consumers paid or be deferred for future payment which would be more costly.

He said a non-increase in tariff could lead the DisCos to shut down operations as the environment is no longer profitable, or operate on reduced capacity.