Adebayo Adelabu, the Nigerian minister of power has explained that the recent increase in electricity tariff was necessary to boost the liquidity in the nation’s power sector.
The minister who spoke during a ministerial press briefing in Abuja on Friday said that the sector has been deprived of required liquidity to keep it running on a sustainable manner, rendering it unattractive for investments.
He explained that there has been a funding gaps in the sector, especially with the generation value chain, stating that the generation companies have been unable to pay for gas needed to generate power.
“Number one issue which I believe this new tariff is going to address is the liquidity and pricing issues. This sector has been deprived of the required to keep it running on a sustainable level to keep it to build a business because it is no longer attractive to investors, even the operators do not have as much liquidity to invest in the expansion of their infrastructures.
“The generation companies could not pay the gas companies, which is feed stock and the raw materials used in generating the power. Generation companies cannot service their equipment, it gets to a level that they cannot pay the salaries of their workers because of the accumulated debts in the sector due to the lack of liquidity and commercial pricing.
“And I believe that previous administrations have shied away from addressing it, but it is a tough conversation that we must have at a point if we are serious about stable power sector in this country. And this government is committed to dealing with it, but the gains will come very soon and the gains shall be permanent.
“The monies are not coming because of lack of liquidity, investors are not coming because they do not see a line of sight of recovery of their investments, not to talk of making profits. The bankers are not lending because it is not attractive to lenders.”
The Nigerian Electricity Regulatory Commission (NERC), on Wednesday approved an increase in the tariff payable by electricity customers to N225/kWh from N68/kWh.
According to the Commission, having reviewed the electricity supply to customers, had downgraded some customers from ‘Band A feeder’ to Band B. This he explained was because they were not receiving up to the 20 hours of electricity daily. Noting that the new rate at N225/kWh is expected to affect only customers under the Band A feeder, who are offered at least 20 hours electricity per day.
The minister speaking further said that Nigeria has been operating a subsidy pricing regime, whereby the government provides a large portion of the cost of producing, transmitting and distributing the power.
According to him, the government before the tariff review, covers as much as 67 percent of the total cost of generating, transmitting and distributing electricity across the country.
He explained that the tariff review is in conformity with the government’s policy thrust of maintaining a subsidized pricing regime in the short run or the short term with a transition plan to achieve a full cost reflective tariff for over a period of three years.
“At the current exchange rate this is going to translate to N2.9 trn for 2024.
This is more than 10 percent of the national budgets, and the power sector is just a single sector out of the so many sectors that government has to attend to. And it will be very insensitive on our part to compel the government to continue to subsidize electricity at the rate of almost N3trillion.
“I have mentioned it in a couple of media briefings that it is because of government sensitivity to the pains of our people that we will not make us migrate fully into a cost reflective tariff or to remove subsidy 100 percent in the power sector like it was done in the oil and gas sector.
“We are not ready to aggravate the sufferings any longer which is why we said it must be a journey rather than a destination and the journey starts from now on, that we should do a gradual migration from the subsidy regime to a full cost reflective regime and we must start with some customers.
“This is more like a pilot for us at the Ministry of Power and our agencies. It is like a proof of concept that those that have the infrastructure sufficient enough to deliver stable power of enjoying 20 hours of light to be the ones to get tariff add.
“The government would have paid N2.9tr for 2024. This is more than 10 percent of the national budget. It will be insensitive on our part to compel the government to pay such subsidy when we have other competing issues the government needs to fund under pau its of funds we have.
In his remarks, Musiliu Oseni, the vice chairman of the Commission maintained that about 85 percent of electricity consumers are not affected by the new electricity tariff.
He explained that of N240 billion generation invoice for January, the DisCos were only mandated to pay N24 million, being 10 percent of the total invoice. “So that tells you that 90 percent of the generation cost is being subsidized by the government.
“So with this review that means that 50 percent of generation will now be subsidized by the government, being 40 percent reduction in the total amount for subsidy.”
He also disclosed that measures has been put in place to ensure proper monitoring and compliance by the Discos adding that defaulting will be punished accordingly.
