Understanding the Fund
The Electric Power Sector Reform Act (EPSRA) provides the legal framework for the provision of electricity subsidies to low-income consumers. The Act establishes the Power Consumer Assistance Fund (PCAF) for the provision of electric power subsidies for specified consumers.
The primary objective of the Fund is to improve electricity access by providing funds for financing electricity subsidies for ‘under-privileged’ power consumers. The Fund is domiciled and managed by the sector regulator: Nigerian Electricity Regulatory Commission. On the other hand, the Minister of Power has the authority to determine consumer eligibility under the PCAF, contributory classes of consumers and customers, and authorise payments to distribution companies for subsidised electricity. This responsibility extends to specifying classes of consumers covered by the Fund in the relevant regulations.
Why a Consumer Assistance Fund?
Electricity cost is a considerable determinant of access and availability. Affordability and access to electricity are intricately linked, as affordability determines access in most instances. From the use of electricity in hospitals for emergency operations to vaccine refrigeration, food security and storage, education and manufacturing, basic universal electricity access is crucial to any country’s living standard and well-being.
The liberalisation of the Nigerian power sector envisages advanced electricity investments and associated costs. These investments would address the country’s significant challenges of failing power infrastructures. Electricity end-users bear the costs of financing investments in the form of tariffs.
Cost reflective tariffs as the current market structure proposes, are unaffordable to a wide range of power consumers in Nigeria under current economic conditions. On the market side, investment derivatives and projections in the power sector might be unattainable without a measure of assistance to exposed low-income electricity consumers. Without a feasible assistance programme, such vulnerable consumers will lack access to electricity in a competitive pricing system. Therefore, the concepts of affordability and essentiality create a justification for establishing the PCAF for the vulnerable demography.
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Operational and Legal Implementation Frameworks
A critical challenge hindering the effective implementation of the PCAF is the definition of eligibility and qualification of beneficiaries. With over 60 percent of Nigerians living below the poverty line, the determination of different classes of underprivileged customers is a significant challenge to the practical implementation of the PCAF.
The current Multi-Year Tariff Order (MYTO) offers a legal and operational structure for targeting specific consumer classes for rebates. Under the tariff regime, the least consumers of electricity receive the most support. The system is premised on the hypothesis that the low consumption demography, in most cases, constitutes the poorest consumers (with the lowest number of hours’ electricity supply) or lowest-income end-users of electricity.
The MYTO classifies consumers into five groups: the residential, commercial, industrial, special and street lightning. Consumers under the respective groups are required to pay two classes of charges per month. The first is an energy charge calculated per kW of electricity consumed. The second is a fixed monthly charge that replaces the previously paid meter maintenance fees. It is worth noting that the electricity regulator has removed fixed charges since 2015.
The MYTO further establishes a categorisation system for tariff implementation which aids in identification and target specification of subsidies or consumer assistance programs. The order sets a fixed ‘lifeline’ tariff as a consumer assistance subsidy for low-income electricity consumers who consume a maximum of 50 kilowatts (kW) of electricity monthly. The Lifeline residential consumers are exempted from the new tariff structure and are required to pay a flat rate of NGN4 per kW of electricity consumed. Funds from the PCAF offset shortfalls from the low-cost tariffs.
The second operational challenge is the establishment of an effective and transparent framework for managing the PCAF in conformity with the EPSR Act. The current ESPRA created a basic framework with broad ministerial discretions and minimised institutional procedures. Although the ministerial discretions might aim to curb bureaucratic bottlenecks, they are also mostly antithetical to policy stabilisation in the long term. Therefore, creating institutional capacity for the strategic operations of the Fund to impact low-income consumers is a necessity.
Assessing the impact of the PCAF in improving access to electricity
Many power consumers are unaware of their categories under the MYTO customer classifications. According to a 2020 Survey by The Electricity Hub (TEH), 80% of surveyed consumers are ignorant of consumer categorisation and the existence of the Lifeline Consumer tariff.
According to the same survey, 95% of consumers in low-income areas reported a noticeable hike in electricity tariff for the year. These figures show that the impact of the PCAF is relatively unfelt within the target demography. The lack of impact may be attributable to the Lifeline tariff threshold, which is perceivably low and is ineffective in many low-income neighborhoods. Such defeats the intentions and purpose of the PCAF.
There are no clear legal procedures for the smooth operation of the Fund and claims of eligibility to the Fund. 98 percent of low-income consumers in the survey report ignorance of any guidelines for filing or assessing their eligibility for the Fund. The same group of consumers report a high willingness to be included in the Lifeline tariff support scheme.
The objective of the Fund is to improve electricity access by providing funding for electricity subsidies for low-income power consumers. However, this objective is far from the current survey realities. The PCAF can only address electricity access for majorly the grid-connected urban poor. Thirty-four percent of rural power consumers are unconnected to the grid. The PCAF subsidy structure has no provisions to address access to electricity for this category of power consumers. The PCAF framework does little to improve access to electricity to the ~80 million unelectrified consumers in over 4,000 low-income communities across the country.
The strata of consumers of less than 50kW per month are relatively small in the urban grid-powered end-users. In the current fast-paced world, every human action is powered by or linked to electricity consumption. Simple, everyday tasks have consumers growing somewhat dependent on electricity where available. Such customers are relatively unsensitised on energy efficiency and the use of energy-efficient products. Although the supply for this category of consumers might be low, demand is still higher than the 50kW threshold. Hence, there will be an increasing number of low-income consumers fall out of the assisted threshold of Lifeline consumers.
A revised framework that will benefit a broader population of target demography is essential. Transparent application processes, eligibility verification and granting of assistance under the PCAF scheme, including design of an automated system to administer and monitor the operations of the PCAF, are essential to practical implementation.
Conclusion
Global best practices in social security reforms require targeted interventions that identify and address certain social strata and groups. The current structure of the PCAF is ineffective in alleviating the effects of a cost-reflective tariff system for low-income power consumers in Nigeria. Therefore, a suitable implementation structure for administering a need-based assistance scheme is essential to the effective implementation of the PCAF.
