• Sunday, May 26, 2024
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BusinessDay

Government’s new electricity tariff sparks concerns and impact on businesses

The Nigerian Electricity Regulatory Commission (NERC) announced recently a significant increase in electricity tariffs for Band A power consumers, raising the rate from N68 to N225 per kilowatt-hour with immediate effect. This move by NERC comes as part of efforts to remove subsidies on electricity, particularly for Band A consumers who represent about 15% of the country’s total power users.

During a press briefing in Abuja on Friday, Minister of Power Adebayo Adelabu, defended the government’s decision to implement the new tariff regime for Band A consumers despite widespread calls for its reversal. Adelabu cited the unsustainable nature of the government’s financial burden in subsidising electricity, estimating that the subsidy for 2024 alone would amount to approximately N2.9tn.

The impact of this tariff hike is expected to ripple through various sectors of the economy, particularly affecting businesses and consumers.

Juliana Abii, a businesswoman who is also the managing director of a savings and loans company, expressed concerns about the increased cost of running households. She highlighted the disproportionate nature of the tariff hike, which is over 400 percent, compared to relatively stagnant income levels. Abii noted that this surge in electricity costs would lead to reduced standards of living, affecting everything from food prices to overall household expenses and businesses.

“It is a holistic thing. Everything you buy in the home from water to food stuffs is going to be negatively affected and it will transcend the level of diet people will have now.” Abii said.

“Now coming to small businesses, there will be proportionate inflation in the cost of running businesses. If one used to spend X amount of funds to pay for light, now you will spend four times X. Meaning that you will increase the sale of your product by four and you reduce your patronage in a reverse proportion. If you used to have ten to 30 customers coming to eat in your growing restaurant to patronise you, things will change. Because your prices will increase, and it will either reduce the number of customers or reduce the quantity they buy from you, especially people that serve consumables.” Abii said.

Abii went on to explain that for people that deal in consumables, the cost will be higher; the patronage will reduce proportionately, and of course net profit will go down. Each will cumulatively affect productivity. “If you go into the larger business circle, it will flow like that,” she said.

“It may cause people to seek other options like solar, which not all businesses/companies can afford presently. It can cause reduction of staff because if businesses are not generating enough, their productivity will go down and they will lay off staff,” Abii further said.

The financial mogul went on to state that the increase in tariff cannot in any way affect businesses positively.

Peace Etugbo, owner of a small chops business, shared firsthand experiences of how the tariff increase has negatively impacted her business. She mentioned significant rises in production costs and operational expenses, which may force her to increase prices, potentially putting her at a competitive disadvantage.

“The recent hike in the tariff has affected my business negatively. My cost of production and running costs have increased .

I may now be forced to increase prices which may put me at a disadvantage with my competitors who are bigger and better positioned to withstand the increase. Now I spend triple of what I spent before,” Etugbo lamented.

The sentiments of concern were echoed by Mohammed, who emphasised the potential consequences of businesses shutting down and job losses due to the increased financial strain caused by higher electricity tariffs. He stated on X that “Can’t sleep thinking about the tariff increase in power. It might just mean businesses will shut down. The money you were trying to get will be lost. People will lose their jobs.”

Stanley Ezinna, in a comparative analysis, pointed out that using petrol to generate electricity was now cheaper than relying on the national grid, illustrating the financial challenges posed by the new tariff structure.

Overall, the tariff increment has raised significant alarm bells within the business community, with fears of reduced productivity, increased operational costs, and potential layoffs looming large. Businesses are now faced with the daunting task of navigating these financial hurdles in an already challenging economic environment.