That Rise in Electricity Tariffs

Petrol-Price-HikeBarely six months after the 49.2% hike in fuel prices from N67 per litre to N97 per litre, the Nigeria Electricity Regulatory Council (NERC) announces the introduction of higher electricity tariff with the hope to regulate electricity supply and accelerate income for the government not minding the national socio-economic hardship.

The newly imposed tariff which takes effect from June 1, 2012 has been received with mixed feelings by consumers and consumer advocacy groups across the country, some see such policy as aggressive and a move to further impoverish the indigent in the society, while others view it as a required strategy towards sustainable growth and development of Nigeria.
Under the new tariff, consumers have been classified into two basic categories, these are electricity consumers in the residential two (R2) category (residential customers with single-phase meters), where most consumers belong, will pay between N10.85 and N14.60 per Kilowatt hour as against the current rate of N7.30 per Kilowatt. It is noteworthy that per kilowatt hour is estimated to be the amount of the power consumed by an individual or organization.

Meanwhile in the year 2011, electricity tariff was reported to have been silently increased from N4.20K to N7.00 with zero significant improvement in power generation and distribution. The policy is said to have no consideration for the purchasing power of Nigerians that are adversely affected by the ever increasing inflation in the country plus the removal of oil subsidies which has already exhausted the N18,000 minimum wage increased in the year 2011.

One could imagine the present level of Nigerian standard of living and the position of its power supply with overly retrogressive development. For instance, while the United Nations Human Development Index (2007) ranks Nigeria 158 out of 177 countries which is a significant decrease in its human development rank of 151 in 2004, the World Bank Development Indicators (2000) have placed Nigeria within the 20 poorest countries of the world.

Besides, a report from United Nations Children’s Fund (UNICEF) has shown that majority of Nigerians are poor with 71 percent of the population living on less than $1 a day. Nigeria’s irregular power supply has over the years back pedaled its economic development. For instance many businesses have witnessed collapse; about 90% of textile industries previously operating in the country have been dilapidated, while others like Nigeria Dunlop Ltd have relocated to other countries. 
We should remember that stable power supply largely determines the presence and development of manufacturing sector in any developed economy. Regular power supply marks the basis for the increasing level of intensive capital production among the G8 economies such as West Germany, France, Italy, Japan, United Kingdom, United States, Russia and Canada.

This unpleasant development has not only discouraged investors at both local and international levels, but also driven away the existing manufacturing industries. Nigeria electricity generation which presently stands at 3800 Mega Watts cannot sustain all the nation’s energy needs. Sadly, the Nigeria Energy Commission (NEC) reported that the manufacturing sector alone will consume about 2000 Mega Watts of electricity to keep the factories in the country running at installed capacity. The country remains the worst hit by the dwindling power supply which has led to the near total collapse of the entire industrial sector. Nigeria needs a critical reform in power sector to attain economic growth and development.

It has been argued that the growth of any nation is critically dependent on the sufficiency of its electricity supply. However, the development of the various sectors of the economy, such as industry, agriculture, health, education, tourism, etc, depends heavily on reliable, adequate and economically priced power. Reliable power supply will stimulate industrial and agricultural development, transportation and communication, create employment, education and functional health care facilities.

The increase in tariff if not accompanied with increase in power generation and distribution will ultimately force the existing industries that spend almost 50% of their incomes on fueling generators out of business and scare away prospective investors. The irregular power supply has limited income generating opportunities of the industrial sector and resulted in increased cost of doing business. In spite of the abundant hydro resources and natural gas reserves in the country which has assumed prominence for fueling electricity generation globally, the state of electricity supply continues to pose major policy challenge to successive governments.

South Africa with a population of about 44 million has electric generating capacity of 30,000 Megawatts which translates to an annual per capita consumption of electricity of 4500 kWh after its successful collaboration with an Independent Power Producers, ESKOM in the year 2008; while Nigeria’s annual per capita consumption of electricity is estimated at between about 100 kWh and 135 kWh.

In Nigeria, power utilities are plagued by poor governance, weak management capacity, lack of technical skills, poor revenue collection, economic mismanagement, high technical losses and theft, resulting in inefficient operations and undermining financial viability.

While the country has attempted some degree of sector reform such as the setting up the Electric Power Implementation Committee (EPIC), formulation of the National Electric Power Policy (2001), drafting and enactment of the Electric Power Sector Reform Act (2005), transformation of NEPA into Power Holding Company of Nigeria (PHCN), establishment of the Nigeria Electricity Regulatory Commission (NERC) and the Rural Electrification Agency (REA); nevertheless, steady power supply remains elusive.

Abubakar Jimoh is a member of NYSC at RMAFC, Abuja.
[email protected]

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