7 of 10 businesses risk closure over electricity tariff hike

Organised private sector want N225/kWh rate suspended

The Organised Private Sector in Nigeria (OPSN) has said over 65 percent of businesses, especially manufacturing concerns and small and medium enterprises, may be forced to close down on the back of the recent electricity tariff hike.

The group comprises the Manufacturers Association of Nigeria, the National Association of Chambers of Commerce, Industries Mines and Agriculture, the Nigeria Employers’ Consultative Association, the Nigerian Association of Small Scale Industrialists and the Nigerian Association of Small and Medium Enterprises, representing over 5 million businesses, according to a statement on Wednesday.

It said the increase in electricity tariff for Band A customers, those getting 20 hours of supply, came on the heels of macroeconomic instability, infrastructure deficits, as well as other supply-side constraints limiting the performance of the productive sector.

Read also: Nigeria’s Electricity Tariff Hike: A Reckless Move in Need of Urgent Correction

“It will have negative trickle-down effects and certainly impoverish Nigerians. The unwarranted increase will worsen the upward swing in inflation, aggravate the pressure on the disposable income of the average Nigerian, and lead to the closure of many private businesses. The cumulative effect will be an escalation of the current high level of unemployment and insecurity in the country,” the OPSN said.

According to the group, with the new tariff of N225 per kilowatt-hour (kWh), Nigeria now ranks third after Germany and the UK on the list of countries with high electricity costs.

“What is most worrisome with the Nigerian case is the fact that the electricity to be supplied is not adequate,” it said.

Earlier this month, the Nigerian Electricity Regulatory Commission (NERC) announced an increase in the tariff payable by electricity customers under the Band A category to N225/kWh from N68/kWh.

Read also: Lingering gas shortage puts 20-hour electricity for Band A areas at risk

According to NERC, this category of customers constitutes about 15 percent of the electricity customers in the country.

This follows the recent increase in the base price for natural gas from $2.18 to $2.42 per metric million British thermal units by the Nigerian Midstream and Downstream Petroleum Regulatory Authority.

The tariff hike was greeted by uproar from the Nigeria Labour Congress and the Trade Union Congress as they argued the increased cost will cripple manufacturers, exacerbate inflation, and stifle the growth of SMEs.

The two labour bodies raised concerns about the actual availability of the promised 20-hour daily power supply, questioning its existence anywhere in the country.

Read also: Manufacturers, labour fume over 240% electricity tariff hike for Band A customers

Meanwhile, the OPSN said that the astronomical increase is against the MYTO Order referenced NERC/2023/05, which valued the cost-reflective tariff at N114.8/kWh (determined using the exchange rate of N919.39/$1).

“It also does not reflect the current exchange rate reality that has seen the naira appreciate by 62.95 percent over the dollar in the last month,” it said.

The organised private sector called for the suspension of the implementation of the new tariff.

It said: “This will enable all stakeholders to have meaningful dialogue around the process and methodology of determining electricity tariffs as well as jointly agreeing on the transparent mechanism required for tariff setting.

“In consideration of the above and from compelling primary data and submissions from member companies, the OPSN is constrained to state that the more than 200 percent increase in electricity tariff at this difficult time is inimical to the survival of our businesses and would lead to unprecedented downturn in the productive sector of the economy.”