Electricity Tariff Hike Looms as Monthly Subsidy Hits N181bn

 Electricity customers in Nigeria, particularly those on Band A feeders, may soon face a tariff hike due to the rising electricity tariff shortfall, also known as subsidy. The monthly subsidy has skyrocketed to N181.63 billion in September, up from N102.30 billion in May .

To put this into perspective, the Nigerian Electricity Regulatory Commission (NERC) had previously removed subsidies for Band A customers, who receive at least 20 hours of electricity daily, resulting in a tariff increase to N225 per kilowatt-hour . Although the tariff was later reduced to N206.80/kWh in May, it was hiked again to N209/kWh in July as the subsidy rose to N158 billion .

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The main driver of the electricity subsidy is the foreign exchange crisis, with the dollar exchange rate fluctuating between N1,494.1 in July and N1,601.5 in September . The NERC has maintained that the dollar rate and inflation are key determinants of the cost of power production .

Key Factors Contributing to the Tariff Hike:

- Rising Subsidy: N181.63 billion in September, up from N102.30 billion in May 

- Foreign Exchange Crisis: Dollar exchange rate fluctuations 

- Inflation: Nigerian inflation rate of 33.40% 

- Gas Price: Benchmark gas-to-power price of $2.42/MMBTU 

Who are Band A customers?

Band A customers are those who enjoy 20-24 hours of electricity supply daily. These customers are primarily located in areas such as Ijaiye, Akowonjo, Ikorodu, Oshodi, and Shomolu in Lagos State .

The Nigerian Electricity Regulatory Commission (NERC) recently ordered a downward review of electricity tariffs for Band A customers, reducing the rate from N225 per kilowatt-hour to N206.80/kWh. This decision was discussed by Adeyeye in an interview with ARISE NEWS, where he highlighted the commission's move to adjust the tariffs .

The Nigerian Electricity Regulatory Commission (NERC) has indeed proposed adjusting electricity tariffs every month instead of every six months as initially planned. This move aims to provide incentives for continued improvement in services, as shortfalls would be promptly recognized and computed into tariffs.

The NERC has been reviewing the Multi-Year Tariff Order (MYTO) methodology, considering changes in parameters like inflation, exchange rate, gas price, power generation capacity, transmission capacity, and operators' capital expenditure requirements to adjust tariffs .

Key Reasons for Monthly Tariff Adjustments:

- Improved Service Delivery: Encourages Distribution Companies (DisCos) to enhance services, reflecting the actual costs and benefits .

- Market Liquidity: Enables operators to recover efficient costs promptly, boosting market liquidity .

- Macro-Economic Changes: Allows tariffs to adjust to changes in foreign exchange and inflation rates .

Previous Tariff Review Process:

- Six-Month Review: NERC reviewed tariffs every six months, considering macroeconomic changes .

- Major Reviews: Conducted every five years, with minor reviews in between .

The proposed monthly tariff adjustments aim to ensure that electricity tariffs accurately reflect the costs of service delivery, promoting a more efficient and sustainable electricity market in Nigeria .

For context, the NERC implements a Service-Based Tariff (SBT) scheme, which aims to improve service delivery and ensure tariffs reflect the services delivered by Distribution Companies based on the number of hours of electricity supply per day . The Multi-Year Tariff Order (MYTO) methodology also plays a role in determining tariffs, considering factors like inflation rates, NGN/US$ exchange rates, and gas-to-power prices .

The potential tariff hike has sparked concerns among Nigerians, including labour unions, education, and health institutions, whose electricity bills may triple following the removal of the subsidy .