Electricity Tariff Hike: The Art of Balancing Cost and Concern

Electricity

Stable power supply is a major component of development for any country’s economy, besides capital and labour. In Nigeria, the problem of poor electricity has persisted, though there have been some marginal improvement in the last few years or so. The limitations experienced in the country are further compounded by a seemingly recurring increase in electricity tariffs. It is almost like there is an increase in tariff each time anything about electricity is in the news.

Nigerians nonetheless have continued to lament the increase in electricity tariffs. Only recently, the FG increased the electricity tariffs payable by power consumers across the country. Approval for the hike in tariff was given by the Nigerian Electricity Regulatory Commission and designed to take effect from January 1, 2021. It is imperative to see that this is coming months after the public outcry that accompanied the hike in electricity tariff in September last year. When the Nigerian Labour Congress (NLC) threatened to embark on a nationwide strike. But following series of negotiations, the tariff was reduced based on consumer classes and the hours of power supply received by different groups of electricity user.

On November 1, 2020 however, power distribution companies commenced the implementation of the revised electricity tariff that was jointly agreed upon by organised labour and the Federal Government. The Nigeria Labour Congress assured Nigerians that the FG would not revert to the September 1, 2020 service reflective tariff that generated public outrage. Deputy President, NLC, who doubles as General Secretary, National Union of Electricity Employees, Joe Ajaero, stated that the September 1, 2020 hike in tariff had been reviewed downwards in most categories. But two months after implementing the revised tariff that saw various levels of increase in rates, the government has again increased the tariff.

According to findings, the revised Service-Based Tariff saw an increase in the rates payable by the various classes of electricity users. This is different from that of November 2020 that exempted low electricity consumers.

The recent increase in electricity is particularly lamentable as Nigerians struggle with hikes in other areas such as food, transportation, fuel, amongst others, consequent on the impact of the pandemic on the economy. A large part of her citizenry has expressed grief that even with present harsh realities, NERC has gone ahead to increase electricity tariff by nearly 50%, at a perilous time like this.

Meanwhile, NERC explained that it took into consideration certain factors as the 14.9 per cent inflation rate rise in November 2020 and foreign exchange rate of N379.4/$1 as of December 29, 2020. Other factors include available generation capacity, the United States inflation rate of 1.22 per cent and the Capital Expenditure of the power firms before the tariff was raised. With the increase in tariff coming almost on a quarterly basis, Nigeria’s electricity problem has remained. This has led many Nigerians to query the place of the tariffs, especially with recent reports that Nigeria’s power generation has dropped to 4, 112 MW as at 5 January, 2020.

It is imperative to note that the Nigerian Electricity Regulatory Commission (NERC) is vested with the responsibility of regulating electricity tariffs in the Nigerian Electricity Supply Industry (NESI), and to also ensure that the prices charged by licensees are fair to customers. Historically, the NERC has carried out this function by issuing series of tariff orders. This is known as the MultiYear Tariff Order (MYTO). So far, the MTYO has seen one major review in 2012 and two minor reviews in 2015 and 2019. That of 2020 known as The Order centered on the transition to cost-reflective tariffs in Nigerian electricity issued on 31, March 2020.

Stakeholders have commended the 2020 Order on the Transition to Cost Reflective Tariffs in NESI for its attempt to improve the quality of service and engage end-users in the determination of tariffs. There are however worries that “The Order” considers the concerns of the end-users at the detriment of the disco companies, as well as the rest of the electricity supply chain in NESI. This might have informed the new increase in electricity tariff as NERC tries to balance the concerns of all the stakeholders in the industry.

The MYTO 2020 also take into consideration that the NESI can only thrive on a cost reflective tariff, and set a path to achieving this. It does not just look at this, it also ensures that the interest of the customers and the Discos are fairly balanced. This balancing is achieved because the Discos are not allowed to increase the tariff of the end-users without a corresponding increase in the level of service. Hence, to earn more revenue, the Discos must add more value. While the timing of the increase introduced by the MYTO 2020 has been berated by the public, it would appear that to sustain the Nigerian Electricity Supply Industry (NESI) such intervention was inevitable.

Even with the electricity deficit, the International Monetary Fund (IMF) 2020 World Economic Outlook rating ranked Nigeria as the number one country in Africa, based on the country’s GDP. Nigeria is 26th in the world with an average of 442,976 million U.S. dollars. This might bolster the argument that there is no causal link between electricity and economic growth. However, the growth in Nigeria’s economy in spite of the shortfall in power supply indicates what the economy can achieve when the supply is constant and stable.

Nelson Okoh

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