The new electricity tariff beats the band backwards

With the new electricity tariffs, the Bola Ahmed Tinubu government has again put its cart before the horse and pushed it down the ravine, causing an avoidable economic maelstrom for citizens and the country. It is another case of “subsidy is gone,” inspired by a mysterious spirit and uninformed. They should withdraw it to avoid even more severe damage.

The Ministry of Power approved it, and the Nigerian Electricity Regulatory Commission (NERC) announced a 300 percent increase in the tariff for customers on Band A. These customers allegedly get 20 hours per day of electricity from their distribution companies. NERC claims such people represent 15 percent of electricity consumers.

“The core of the disagreement with the tariff increment is the question of doing the last thing first.”

The tariff moved from N66 per kilowatt hour to N225 based on NERC’s Multi Year Tariff Order template. Unlike what Nigerians have experienced with the telecoms regulator, NERC did not notify customers, the primary stakeholders. It has since shown all the signs of a hurried and ill-digested move.

Communication around the increment needs to be more cohesive and coordinated. Various officials are currently saying different things. NERC asserts that it would affect only a few customers in one breadth. In another, it says the price increment would spread to all customers within three months.

NERC officials have been visiting media houses to enable customers to make sense of the move.

Nigeria now categorises electricity consumers by band according to the hours of electricity they get. Band A customers should get at least 20 hours; Band B gets 16 hours; Band C 12 hours; Band D eight hours; and Band E four hours. The immediate feedback is that far fewer customers get 20 hours. Pointedly, many citizens do not fit into any band, as they receive power every four days.

NERC blames higher input costs for the astronomical increase. Gas is the culprit. The regulator last reviewed tariffs in December 2022, when gas was sold at $2.18 per one million British Thermal Units (MMBTU), or N930 per unit. An 11 percent increase in gas prices brought the cost to N3500 per unit. NERC justifies a 300 percent increment based on an eleven percent increase in the price of gas!

NERC’s Commissioner for Planning, Research, and Strategy, Yusuf Ali, admitted to Channels TV that major tariff reviews should happen every five years. A 300 percent review should count as significant. However, the last review was less than three years ago.

The central issue is the rule of bean counters. NERC admits to focusing on subsidy savings rather than economic productivity or citizens’ welfare. Yusuf Ali admitted their motivation was to save N1.14 trillion, or four percent of Nigeria’s N27 trillion 2024 budget. It also enables stakeholders in the energy value chain to recover their investments.

Since the April 3, 2024, announcement, NERC has followed with clarifications. One points to wrong billing arising from a lack of clarity about billing bands.

NERC stated, “All Discos shall set up a portal on their website by April 10, 2024, that allows all customers to check their current bands by entering their metre or account numbers. All customers wrongly billed at the new rate should be refunded through energy tokens no later than Thursday, April 11, 2024, and file evidence of compliance with the commission by April 12, 2024. The commission shall monitor compliance with the abovementioned requirements and continue to support all stakeholders as required.”

The core of the disagreement with the tariff increment is the question of doing the last thing first. The Federal Government threatened at the end of February 2024 to revoke the licence of power distribution companies for persistently poor power supply in the country. Through his X handle, the minister said he summoned the Chief Executives of Abuja Electricity Distribution Company, Ibadan Electricity Distribution Company, and the Managing Director of the Transmission Company of Nigeria to a crucial meeting to explain the current challenges nationwide. “The purpose of this meeting is to discuss the worsening power supply in their respective regions and to find lasting solutions collectively,” he said.

Minister Adebayo Adelabu also directed distribution companies to no longer reject power allocation from Nigeria’s transmission company. He promised that Nigeria would ramp up power generation and supply to 6000–6500 MW from the perennial average of 4500 MW in three to six months, translating to June and September 2024. He also promised that the federal government would settle outstanding debts owed to players in the electricity value chain.

Rather than follow through on its promise to improve power supply, the federal government inflicts further pain on electricity consumers with this far-fetched increment. Instead, the Federal Government obeyed the IMF directive that “electricity subsidies are costly, do not reach those that most need government support, and should be phased out completely.” The government has failed to show how the scheme fits into President Bola Tinubu’s manifesto, while significant economic players such as manufacturers and chambers of commerce are against it. We urge the federal government to withdraw the order and rethink it.