The desire to give Nigerians a temporary relief was what led to the reduction of the earlier electricity tariff tagged ‘Service Reflective Tariff’ which was inaugurated in September this year.
To achieve the reduction, the Value Added Tax (VAT) component of the tariff which was implemented in September1, 2020 was removed. The VAT component is in the region of about N40 billion. Normally, this amount of money goes to the government as Value Added Tax. However, this was considered as an aspect that the government can allow to go for now pending when a holistic assessment of the various cost elements of the tariff are done.
Consequently, those in band A and B which belong to the upper class, now have their tariff reduced by 10 per cent for A and band B 10.5 per cent. Band C was reduced by 31 per cent. This interim relief will be in operation while the committee moves on with its assignment and explore further areas where there can be further reduction in tariff.
Now that VAT has been removed the committee will settle down and look at other areas where there could be further reduction.
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The ultimate goal of the committee is to further reduce the tariff in such a way that it would be more affordable for consumers to pay, a source told Businessday.
According to the source, he said, even the law setting up the tariff stated that it must be reasonable.
“We have to look at the reasonability of this tariff and see how the people can afford it compared to the service being rendered by the Discos. Bear in mind that there are hydro power stations that also provide electricity that are still given electricity. But they seem to costing everything based on gas generated electricity. Meanwhile a lot is being made through hydro but they use the price of gas to determine most things that have to do with the tariff. So all these things have to be looked into and it cannot take one or two weeks to do,” the source said.
The government was forced to suspend the implementation of the new electricity tariff regime in September, following a threat of industrial unrest by the Nigeria Labour Congress (NLC), its affiliates and allies.
In the course of negotiation with organised labour, the federal government resolved that the tariffs for certain categories of consumers should be reviewed downward.
Ahmad Zakari, Special Adviser on Infrastructure to President Muhammadu Buhari, who spoke during the 51st virtual Power Dialogue organised by Nigeria Electricity Hub in Abuja, had said that the government delayed the implementation of the new tariff having been suspended for two weeks because it wanted to provide additional palliatives at this difficult time.
He admitted that the government had been doing many things wrong, which had prevented it from making progress, but noted that from now, all the hard decisions to ensure the survival of the industry and supply of stable electricity to Nigerians will be taken.
He explained: “If you have a product that sells for N10, there’s no business that can survive selling for N5. Your working capital I’ll expire and you will be out of business. That’s the situation we found ourselves and we have been focusing on the wrong things”.
According to him, the government thought that magically power should be sold for N31, and then make all the Discos comply when power costs N50.
We need to stop that. If the government wants prices to be low, it has to drive efficiency. The SIM card that was N50k, people now give it out for free, he said.
He stated that the Discos cannot be held down but what can be done would be to find efficiencies in gas pricing and aggressive loss reduction through metering and long interest financing. With this over time, he said, prices will come down.
