FG concedes to Labour on tariff, to pay N15bn subsidy for three months

The Federal Government has acceded demands by labour unions to provide relief for Nigerians facing difficulties on account of COVID-19 and as a result Nigerian electricity consumers will get a discount on their bills for three months ending December 31, BusinessDay has learnt.

Labour’s victory which will be formalized at a final meeting Sunday at the villa, means that the federal government will now have to pay as much as N5bn monthly in subsidy which will be funded by a VAT rebate to be offered to Discos till the end of the year.

In the emerging deal between the government and Labour unions who rose on protest against the recent decision to end petrol and electricity subsidies, the Federal Government agreed to a two-phased approach to solving the impasse – a short- and medium-term solution.

According to those close to the negotiation, the immediate solution will see the Federal Government pay N5billion monthly as subsidy till December 2020 while the short-term approach involves reviewing the basis upon which the Service Reflective tariff was determined as well the audit the revenue of DisCos and evaluating the mechanism for gas pricing.

According to the terms of the immediate resolution, electricity customers across Bands A-C, who saw a tariff increase will enjoy different levels of discount. Customers in band A will see a 10 percent reduction in tariff increase which amounts to N2.49 per kilowatt hour adding a N1.8billion bill to government’s monthly subsidy spend.

Electricity customers in band B will enjoy a 10.5 percent reduction in tariff increase which amounts to N2.24 per kWh and will cost the Federal Government N900million monthly.

While electricity customers under Band C will enjoy a 31 percent reduction in tariff increase amounting to N5.46 per kWh. This will cost the Federal Government N2.350billion every monthly in fresh subsidies.

Customers in bands D and E, whose consumption was not subjected to tariff increase are not affected. There will also be a mandatory refund for any overbilling during transition to service based tariff while tariff for bands D and E will remain frozen.

Under the Service-based electricity tariff, customers in bands A – C, pay from N56 per kWh to N42 per kWh depending on the DisCos. In the past the average payment for electricity was between N28 – N37 per kWh for most electricity customers.

This subsidy will be funded by from VAT proceeds from the Nigerian Electricity Supply Industry.

Labour unions also secured an agreement to provide Nigerians with 6million meters through the national mass metering programme (NMMP) which the Central Bank of Nigeria will fund.

Other concession won by labour include the protection of the salary of electricity workers, the mandatory publication by NERC of allowed billings in naira for unmetered customers to make the capping regulation more effective as well as recommendation for the inclusion of Labour representation in NERC.

The second phase of the deal is that within 90 days, there will be a review of the inputs into the Multi Year Tariff Order to clarify why DIsCos have different pricing for power.

There would also be a ground audit of implementation of the Service Based Tariff to ensure that consumers are not over-charged, or placed in a wrong service band. Gas pricing and resource capacity of the NERC and NEMSA will also be evaluated according to the deal.

The Federal Government on the other hand secured labour’s understanding that a cost-reflective tariff was inevitable if the sector is to attract badly needed investment to stop if from being a drain on public finance to free funds for education and healthcare.

By this deal, the Federal Government is betting that the short-term loss will be immaterial when compared to the benefits of a thriving electricity industry capable of attracting investment and does not need a government subsidy.

Nigeria is in the middle of a Siemens deal which seeks to improve distribution and transmission infrastructure in the country and double power distributed to. Homes and offices in the next five years.

Nigeria is also negotiating a $750million financing from the World Bank to improve cash flow in the power sector and a tariff review was a condition precedent for the deal and a labour strike on the electricity sector will bad for the agreement.

Analysts have said current reforms including the tariff review were needed to attract private sector investment to the sector.

“The country hasn’t performed well in improving electricity access,” says Ayodele Oni, energy lawyer, and partner at Bloomfield law firm, “The power sector has consistently got worse until recently. Things have improved slightly and if all hands remain on deck, the story should be different within the next decade.”