September 25, 2023

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Currency Window Unification, Inflation Pushes Hike in Electricity Tariff


CEM REPORT, ENERGY | Electricity tariff is set to hit a whole new pricing of over 40 per cent increase in the coming days.

With the Tinubu-led administration set to remove all forms of subsidy from the energy sector and the unification of the exchange rate window, the Nigerian Electricity Regulatory Commission (NERC) 2022 Multi-Year Tariff Order (MYTO) had been disrupted.

The hike in the electricity tariff is attributed also to the nation’s present inflation rate and other market factors.

While the present administration is setting up the economy for a free market operation in every sector, the removal of subsidies continues to bite hard on Nigerians as they are at the receiving end of the implementation of this policy.

Although experts have continued to assure Nigerians that these policies will eventually yield desired results.

Exchange Window Unification and Electricity Tariff

The current Service Based Tariff (SBT) of NERC is based on an exchange rate of N441/$ and inflation of 16.97%.

According to NERC regulations, the average rate among distribution companies (DisCos) and end-user classes in 2015 was N25 per kilowatt, in order of 198/2020, which went into effect on September 1, 2020. The average tariff was N60 per kilowatt; the average tariff in the MYTO for 2022 was N64 per kilowatt across all customer classes.

The foreign exchange rate used to determine the 2015 tariff was N198.97/$, N383.80/$ in 2020, and N441.78/$ in 2022. The inflation rate considered in the 2015 MYTO was 8.3 per cent, 12% in 2020, and 16.97% in 2022.

Currently, the inflation rate is 22.41 per cent and some experts have projected that it would hit 30 per cent by the end of June given the floating of the naira and subsidy removal on PMS.

While NERC’s projected tariff for July 2023 was expected to remove subsidy and increase the previously frozen tariff band D and E, increasing the bands from N54.59/kilowatt to N62.16 for band D and N48.37/kilowatt to N61.16 on average with an average increase across the bands moving to N67/kilowatt, the prevailing floating of the naira and spike in inflation is projected to move the new average tariff to about N88/kilowatt for the sector to recover the cost.

Additionally, gas prices, losses and actual generation capacity are other elements in determining the tariff.

According to the President of Nigeria Consumer Protection Network, Kunle Olubiyo the last major review of electricity tariff was benchmarked at $1/N400, noting that the floating of Naira and harmonisation of the exchange rate put the exchange rate at about N750/$.

“It will affect the tariff template and result in an upward review of electricity tariff.

“As important as this may be, two things are quite imperative to help in achieving a win-win for the demand and supply side of the coin.

“Moving forward, governments through relevant regulatory institutions should liberalize end users’ customers ‘ access to effective metering and mass metering to help in drastically closing the ever-increasing huge metering gaps.”

It is worth noting that the power sector players have been unable to meet the threshold of supplying at least 5,000 megawatts a year after signing contracts with NERC and there remains a metering gap of over seven million.

Madaki Ameh, an energy lawyer who is upset about the potential hike, called the upward evaluations of power tariffs as a form of coercion on electricity consumers.

He stressed that as long as there are many unmetered consumers and many more who are not connected to the grid at all, the few consumers who are connected will be exposed to unfair rates that do not represent the level of service supplied.

He added that “Indexing the cost of electricity on the dollar is a huge mistake because most of the inputs for electricity supply are local. The DisCos are also holding Nigerians to ransom by failing to increase the supply base, thereby spreading the tariffs across a broader spectrum of consumers to reduce the unit cost of electricity.” Guardian reports.

Ameh hoped that the signing into law of the new Electricity Act would mark “the beginning of light at the end of the long tunnel of inefficient and epileptic power supply in Nigeria.”

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