Service-reflective tariff for power sector begins July 1. Here’s what it means

From July 1, 2020 electricity customers in Nigeria will begin paying for electricity based on how long they receive power daily as customers have been divided into six bands so that payments can reflect the quality of services offered.

After spending N1.7trillion subsidising power during the Mohammadu Buhari administration, the government can no longer afford bailout as declining oil prices cut into government’s income and yet it wants to prevent exploitation of customers by power companies.

Therefore the Federal Government has negotiated a tariff model that does not emphasize only recovering cost but also ensuring that customers get service that reflects what they pay for power.

According to the new plan, customers have been grouped into different bands based on the number of hours they enjoy power daily.

Band A is for customers who get 20hours of power and above daily, Band B has customers who get power for 16 hours daily, C-band has customers who enjoy power for 12 hours and above a day. Those that enjoy power for 8hours and above is D-band and E-band has customers who only get 4 hours and above but below 8 hours of power supply daily.

Under the plan, there will be no increase for customers in Band E and those called lifeline customers irrespective of how much power they get every day.

What informed this decision?

This year alone, the Federal Government has spent about N380bllion on subsidising power for Nigerians according to a source in the government. But the bulk of this amount, about 60 percent has gone to pay for most of the power used by customers with more financial means including rich people who live in estates and big industrial customers who use the more power.

Now the government thinks that the rich people has enjoyed the power enough and it is time for them to pay their fair share.

The Nigerian Electricity Regulatory Commission negotiated these different band options and said DisCos will get a certificate of no objection but will be responsible for communicating this increase to its customers.

According to the agreement reached with the DisCos, if any DisCo is incapable of providing as much power as it has agreed with a customer, it will be forced to compensate the customer for the loss. For instance, if a DisCo is increasing tariff on the basis of 16 hours and in a given month, it did fulfill that obligation, it will pay a compensation to the customer.

After new tariffs kick on the first day in July, the government will communicate to Nigerians that on the basis of the negotiations they have had with their DisCos, any time they are denied power they would report their DisCos to NERC and NERC will ensure they are compensated.

The Federal Government by this action is indicating that it wants to allow the market function based on commercial arrangments after spending over N380billion on subsidies this year alone.

DisCos are now required to remit up to 90 percent of their commitment to the electricity market except for troubled DisCos like Yola DisCo which has been returned to the government following insurgency in the north.

The Federal Government has budgeted only N60bn for subsidies in 2021 and it plans that it will go to support the power used by the poorest of the people.