NERC commences consultation on proposed tariff review

• Plans to remove subsidy by 2021 ending

The Nigerian Electricity Regulatory Commission (NERC) has commenced the consultation process on the proposed extraordinary tariff review of the MYTO 2015 tariff order for the Nigerian Electricity Supply Industry (NESI).

In the consultation paper, the Commission also disclosed plans to eliminate tariff support in the electricity market by 2021 ending.

In a consultation document uploaded on its website, it explained that the efficiency gains expected from the privatisation of the power sector have not been fully achieved with the sector still facing significant infrastructural, liquidity and governance challenges.

It blamed the challenges on revenue gaps saying: “Arising from series of complaints and dissatisfaction of the sector’s performance by the citizens, the FGN realised the need for its specific strategic and regulatory intervention to reset the market.

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“In developing the sector recovery plan, one of the significant challenges identified was the lack of sufficient revenues to cover the requirements of the sector arising from suppressed end-user tariffs that are below rates approved by the industry regulator.”

NERC noted that the allowed tariffs charged by DisCos were consistently lower than prudent cost-reflective levels since the takeover by core investors, adding that the GenCos were over the years, been significantly underpaid in the settlement of their invoices.

“This remained the situation until the FGN provided a loan to NBET (“Payment Assurance Facility”) to enable the electricity trader honour its invoices for energy and capacity, pursuant to the Power Purchase Agreements executed with the GenCos. In this respect, the FGN had provided a sum of ₦701bn for the period 2017-2018 and a further sum of ₦600 billion approved to cover the period January 2019 – March 2020,” it added.

However, the Commission stated that the intervention so far represents an unsustainable fiscal burden on the Nigerian treasury adding that the total tariff-related revenue shortfall for all market participants for the period 2015 – 2019 is in the sum of N1.72trillion.

In view of this, it stated that the: “Power Sector Recovery Program (PSRP) has proposed the elimination of tariff support in the electricity market by end of 2021 except for the less privileged customers who would continue to be supported under the Consumer Assistance Fund or any other intervention.”

It further disclosed plans to gradually increase tariff so that utilities, in line with the provisions of the EPSRA, can recover their efficient cost of operation and a reasonable return on investment.

While giving conditions for the increase, it said this would be based on a full understanding of the Performance Improvement Plans (PIP) being proposed by the companies, with sanctions for failure to deliver on the said plans.

“The core investors in DisCos are under contractual obligations to reduce the loss levels in the industry, it is expected that tariffs would eventually come down as a result of the efficiency gains and increased energy throughput. In order to mitigate the impact of rate shock on consumers, it is proposed that the gradual increase shall commence on April 1, 2020,” it stated.

To this end, the Commission urged respondents to submit their inputs in response to the consultation questions in the document.

“The submission may include a modification or alternatives to the proposals for further consideration by the Commission,” adding that: “Public Hearing on the extraordinary tariff review would be held at venues within the franchise areas of all the licensees applying for the review.”

Also, it stressed that decision on these proposals will be incorporated in the MYTO model and an Order issued accordingly upon completion of the consultation process.

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