Uncertainty over electricity tariffs leaves many in the dark

The inability of the Nigerian power sector to stick to a coherent strategy in electricity pricing has become a sore point for many, as it distorts the market and could deter investors encouraged by new reforms.

Last month, Nigeria’s minister of power, Sale Mamman directed the Nigerian Electricity Regulatory Commission (NERC) to suspend the recently adjusted electricity tariff that took effect from January 1, 2021, pending the outcome of its negotiations with labour on the hike.

The suspension directive came after the NERC had announced a N2 to N4 adjustment in tariff payable by power consumers who get up to 20 hours supply a day. The regulator said its decision was not only based on heightening inflation and FX volatilities, but also as prescribed by the Electricity Power Sector Reform Act of 2005.

But since the suspension elapsed on January 31, authorities are yet to give a clear position on what tariff regime investors, consumers and other stakeholders should work with.

Rather, Chris Ngige, the minister of Labour and Employment made a terse statement late Monday that they will reconvene on February 22 for the consideration of the reports of the bipartite technical committees on fuel price and electricity tariff.

Analysts say this development is not sending the right signals to investors in Nigeria’s electricity market, more so, to development partners like the World Bank and the African Development Bank, whose support to Nigeria’s power sector has been linked to a credible electricity market reform.

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“On the matter of the electricity tariff, it appears there are discordant tunes. For instance, we’ve also seen the Minister of State for Labour and Employment making pronouncements about those things that are under the powers of the regulator. This can cause market disruption and confusion,” Chuks Nwani, an energy lawyer and power sector governance expert, told BusinessDay.

The discordant tunes from different high government officials, Nwani warned, is capable of disrupting the electricity market while eroding investors’ confidence in the industry.

Oyebode Fadipe, the spokesperson for the Abuja Electricity Distribution Company, told BusinessDay that the suspended tariff will have an adverse effect on the financial plan of the company regarding infrastructure upgrade.

“As at last year the government spent about N540bn on electricity subsidy. I don’t think this is sustainable.

Moreover, there are several items competing for government revenues now, like the insecurity, coronavirus vaccine which puts more strain on government resources to sustain the unsustainable electricity subsidy.”

Edmund Eje, the general manager, Market Operations, Transition Company of Nigeria (TCN), explained at the January NEXIER power dialogue that one of the major reasons for this was the non-compliance in efficient payment of invoices and inconsistencies in tariff implementation among distribution companies which have created a huge market gap.

“This market gap, which is as a result of the non-payment of 100 percent of the issued invoice, has become a perpetual ‘sickness’ in the power sector.

“And that forced the Federal Government to come with subventions such as N600 billion, N701 billion and all that. This amounted to about N1.5 trillion injected into a business that has been privatised.”

“It looks funny, but the government committed it to make sure that this privatisation works. However, this money does not reflect today in the performance of all players in the value chain.”

Aaron Artimas the Special Assistant Media to theMinister of Power, told BusinessDay that the ‘status quo’ is to be maintained on the tariff suspension pending the outcome of the resolution of the Federal Government’s committee currently discussing with labour on the matter.