The new electricity tariff

In a document dated December 30, 2020, the Nigerian Electricity Regulatory Commission (NERC) sought to enforce a new Multi-Year Tariff Order (MYTO).  The new MYTO  increased electricity bill by over 50 per cent across the country. The new MYTO and minimum remittance threshold payable by the distribution companies and signed by the NERC chairman, Sanusi Garba, empowers the 11 DisCos to increase tariff by 50 per cent, citing prevailing economic realities, especially inflation and exchange rate. By this new regulation, all classes of consumers, except those who enjoy a few hours of power supply, will pay more for electricity until June this year.

It will be recalled that early last year, President Muhammadu Buhari announced the full deregulation of the downstream sector of the petroleum industry leading to the removal of oil subsidy. He also announced the removal of subsidy on electricity tariff to ensure right pricing for electricity in order to attract the needed investment in the sector. An increase in the price of fuel and the tariff on electricity late last year led the central labour union to threaten a strike. Eventually, the unions negotiated with the government and agreed to set up a Technical Committee comprising Ministries, Departments, Agencies, the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) to examine the justifications for the new policy, validate the basis for the new tariff as cost-effective in view of the conflicting information from the fields which appeared different from the data presented to justify the new policy by the NERC, deliberate on metering deployment challenges and develop modality timelines for massive roll-out.

It is disheartening that while these issues are yet to be resolved, a raise in the tariff of electricity has been forced on hapless Nigerians. While Nigerians raised their voices against the increase, the NERC has clarified that there is no 50 per cent increase in electricity tariff across the board. According to the NERC spokesman, Michael Faloseyi, “The commission hereby states unequivocally that no approval has been granted for 50 per cent tariff increase in the tariff order for Electricity Distribution Companies (DISCOs) which took effect from January 1, 2021. On the contrary, the tariff for customers on Service Bands D and E (customers being served less than an average of 12 hours of supply per day for a period of one month) remains frozen and subsidised in line with the policy direction of the Federal Government. In compliance with the Electric Power Sector Reforms Acts (EPRSA) and the nation’s tariff methodology for biannual review, the rates for Service Bands A, B, C, D and E have been adjusted by N2.00 to N4.00 per kWhr to reflect the partial impact of inflation and movement in foreign exchange rates.”

Faloseyi further said that the commission remained committed to protecting electricity consumers from failure to deliver on committed service levels under the service-based tariff regime. From Faloseyi’s statement, it is clear that Nigeria operates a system that ties the level of tariffs to the ability of DisCos to meet certain service parameters. They are free to increase tariffs in areas that enjoy at least 12 hours of electricity. This means there are categories of customers. Thus, there is an incentive for DisCos to improve service levels for electricity supply to those who can pay higher tariffs. But it is also an incentive for the DisCos to invest greater resources in improving supply in areas where tariffs are already higher so as to maximise revenue.  This effectively means that the Discos will focus on these areas as priority areas and are thereby discouraged from improving electricity supply throughout the country. This will expand the rich/poor divide in Nigeria. We call on the government to reconsider this policy and ensure that the DisCos are obligated to meet service parameters across all service areas and end-users.

Furthermore, the Minister of Labour has stated that the increment is not in line with the agreement that the government reached with the labour unions. This is important because of the justified opposition to the increment by the labour unions. Today, Nigeria is going through an economic crisis that is largely caused by the Covid-19 pandemic. The pandemic and the protocol put in place to stem its spread have had adverse effects on households and firms across the country.  They have witnessed increased unemployment and reduction in the disposable income of the average citizen. The pandemic has thus affected all classes of electricity consumers, both companies and individuals, making this moment an inappropriate time to implement tariff increase.

In rethinking the tariff for electricity, the NERC must reckon with the poverty levels in the country. Today, the minimum wage of N30,000 is barely able to support the livelihood of poor Nigerians. States like Kano have in fact insisted that they cannot afford it and reverted to the previous N18,000 minimum wage. Any increase in the tariff of electricity will therefore amount to overburdening the ordinary Nigerian.  Yet electricity is a public good that contributes to uplifting the conditions of life of Nigerians and enables them to benefit from the increased productivity that comes with the use of electronic tools for their work.

 

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