The new electricity tariff

The Nigerian Electricity Regulatory Commission (NERC) recently approved a new tariff which will be effective from February 1, 2016. NERC also announced the removal of fixed charges, saying consumers would now have to pay for “only what they consume”. As part of the new changes on the tariffs, power distribution companies (DISCOs) have been given until the beginning of February to meter their consumers to ensure appropriate billing.

The objective of the new tariff, according to NERC, is to enable prudent consumers to save money on electricity bill as they can now control their consumption and not pay monthly fixed charges. All electricity consumers, residential as well as commercial, will no longer pay fixed charges, so their total bills will depend on the electricity they actually consume, which means that their bills may be reduced when they conserve electricity.

For instance, residential customer classification (R2) in Abuja Electricity Distribution Company will no longer pay N702.00 fixed charge every month. Their energy charge will increase by N9.60. Also, residential customers (R2) in Eko and Ikeja electricity distribution areas will no longer pay N750.00 fixed charges. They will be getting N10 and N8 increase, respectively, in their energy charges. Similarly, the burden of N800.00 and N750.00 fixed charges would be lifted off the shoulders of Kaduna and Benin electricity consumers. These consumers will see an increase of N11.05 and N9.26, respectively, in their energy charges.

The new tariff is also good news for commercial consumers. For example, commercial customers classification C2 in Ibadan and Enugu will no longer pay fixed charges of N17,010 and N22,141, respectively. Their energy charge will increase by N12.08 and N13.35, respectively.

The review of the existing tariff became necessary in view of the country’s failure to attain the target set in 2008 under the Multi-Year Tariff Order (MYTO). This is in line with the new thinking of the Federal Government to have the sector privatised to attract investors to shore up its capacity for the benefit of consumers.

Electricity is pivotal to the development of nations. Its use is directly correlated with healthy economic growth. The challenges in the supply of electricity power in Nigeria have crippled the industrial sector. The shortfall of electricity leads to the overuse of generators for energy. US Energy Administration estimates that about 30 percent of energy is produced in this manner.

Nigeria’s power sector has gulped billions of dollars since the country returned to democratic rule in 1999 with successive administrations claiming to be working on it. It was hoped that the privatisation of the Discos would improve the power situation, but two years after the conclusion of the privatisation process, Discos are faced with huge operational challenges, which are clearly visible in their operations and service delivery.

Some of the challenges include a lack of sufficient energy supply from grid; old, obsolete networks; lack of maintenance of network equipment; poorly trained manpower; poor customer data; low meter penetration; health, safety and environmental issues, and a near absence of investments due to poor revenues, inadequate tariffs and external funding constraints.

A central theme underpinning these challenges is the revenue and funding challenge. That is why the recent adjustment of the power tariffs is a welcome development. Underpinning any debt or equity capital raise is a sustainable and cost-reflective electricity tariff and a long-term tariff path. Without cost reflective electricity tariffs, the electricity sector is not likely to attract and sustain the much-needed investments.

The case for electricity tariff increase is strong and compelling. While we believe it is imperative that there should be a tariff increase as proposed by NERC, we are of the view that the Discos must ensure that Nigerians enjoy better services in terms of regular and stable power supply with the implementation of the new tariff regime. We daresay that it is only on this condition that the new tariff regime will enjoy wide support from all Nigerians.