The hike in electricity tariff is considered ill-timed by many especially in the face of hikes in fuel price and value-added tax.
According to a report, following threats of protests by the Nigerian Labour Union, the Federal Government after suspending the recently effected tariff increase for two weeks has agreed to give Nigerian electricity consumers a discount on their bills for three months ending 31 December, to provide relief for those that have been affected by covid-19. This agreement is expected to be formalized at a final meeting on Sunday with the Presidency. The total discounts will result in the federal government paying as much as N5bn monthly in subsidy which is to be funded by a VAT rebate to be offered to Discos till the end of the year.
Based on the agreed terms, electricity customers across Bands A-C, who saw a tariff increase will enjoy different levels of discount. Band A customers will get a 10%(N2.49/kwh) reduction in tariff increase. Band B consumers will get a 10.5% (N2.24kwh) reduction in tariff while Band C consumers will get a 31% reduction in tariff increase amounting to N5.46 per kWh. Band D & E customers who were not affected by the recent increase will get no discount. The agreement reached also provides that 6million meters funded by the Central Bank of Nigeria (CBN) will be made available through the National Mass Metering Programme (NMMP).
Early September, the Nigerian Electricity Regulatory Commission (NERC) and the Distribution Companies (Discos) finally effected a hike in the unit price of electricity after many years of going back and forth. The hike in electricity tariff though considered a freemarket reform that should keep the power sector in tune with market realities and drive efficiency, was considered ill-timed by many especially in the face of hikes in fuel price and
value added tax. Furthermore, income levels in general, have failed to keep pace with the steep rise in living costs resulting from the accelerated cost-push inflation over recent years. Loss of jobs induced by the pandemic has also left many consumers highly improverished as the pandemic has led to many businesses cutting workforce or implementing steep salary cuts
A major challenge in Nigeria’s electricity value chain remains liquidity and the most potent factor driving the liquidity squeeze in the sector stems from the non-cost reflective tariffs charged by the Discos. This has remained a major clog in the wheel for the Discos, making most of them technically insolvent. Another major problem driving inefficiency within the power sector value chain is ineffective metering. While some consumers avoid paying for
power consumed through meter bypass, some other consumers are made to pay for what they haven’t consumed through estimated billing by discos.
While we are uncertain about how much respite the proposed discounts will bring to consumers that have been improverished by the effects of the pandemic, if the agreement to provide 6million meters is kept, then we can say that the labour negotiations were not futile. In our view, without cost-reflective tariffs, it will be impossible to make any meaningful progress in improving power supply and as such consumers will at some point have to come to terms with an increase in tariffs.