ONOME AMUGE
As the Naira continues to gain ground in the parallel market, it would be easy to assume that things are getting better for Nigerians. However, this is far from the reality for many who are still grappling with the effects of rising inflation and a weakened economy. The latest news to hit the public has been the increase in electricity tariff by the Nigeria Electricity Regulatory Commission (NERC), compounding an already challenging situation.
The NERC recently approved a 240 percent increase in electricity tariffs for customers in the Band A category, indicating that those in this category will have to pay N225 per kWh, a sharp increase from the previous rate of N68.
At a media briefing held in Abuja, Musliu Oseni, the vice chairman of NERC, explained the details of the tariff increase. He stated that the new policy will affect those in the Band A category, which includes customers who receive 20 hours of electricity per day and make up 15 percent of the 12 million electricity consumers in Nigeria. The vice chairman noted that these customers also consume 40 percent of the country’s electricity, making them a significant target of the tariff increase.
Under the new tariff structure, electricity consumers in Nigeria have been classified into five different bands. Band A consists of those who enjoy 20 hours or more of power per day, Band B consists of those who enjoy between 16 and 20 hours per day, Band C includes those who enjoy between 12 and 16 hours, and Band D and Band E include those who receive between 8 and 12 hours and 4 and 8 hours of power per day, respectively. The categorisation, according to the NERC, is intended to ensure that electricity tariffs are fairly and accurately calculated based on actual consumption.
Despite the NERC’s stated intention to make the new tariff structure more fair and accurate, many Nigerians have voiced their displeasure with the changes. A common complaint is that the electricity supply they actually receive does not match the durations outlined by the NERC, meaning that they may be paying more than they should for electricity. This frustration is likely due to the country’s long-standing issues with power supply, which have resulted in inconsistent and unreliable electricity service for many.
It is undeniable that energy is critical to every aspect of life, from industry and commerce to agriculture and transportation. Energy costs have a significant impact on the price of goods and services, as well as the ability of businesses to function and thrive. Therefore, any changes to the cost of energy must be carefully considered and implemented in a way that minimises disruption and negative impacts on the economy. However, the recent fuel subsidy removal and electricity tariff hike have caused concern and frustration among Nigerians.
Amidst the ongoing debate and controversy over the removal of the electricity subsidy for a certain segment of Nigerian consumers, the Organised Private Sector (OPS) has urged the federal government to reconsider its decision. The OPS, represented by groups such as Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) and Nigeria Employees Consultative Association (NECA), has argued that the hike will negatively impact businesses and individuals, and that further consultation is needed before the policy can be implemented. As a result, the OPS has called for the suspension of the subsidy removal until a more thorough review can be conducted. This issue is expected to be a key point of discussion at a meeting between the OPS and President Bola Tinubu.
The Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) have also joined in opposing the electricity tariff hike, stating that it will have negative consequences for the economy. According to them, the increased cost of electricity will make it difficult for manufacturers to stay in business, which will lead to job losses and further drive up inflation. They also noted that most areas in Nigeria do not receive 20 hours of power supply, making it unjustified to impose such a high tariff on consumers.
The Abuja Chamber of Commerce and Industry (ACCI) also highlighted the negative impact that the recent increase in electricity tariffs will have on small-scale businesses and other enterprises in Nigeria.
Emeka Obegolu, the ACCI president, remarked that the tariff hike would have far-reaching consequences for businesses across various sectors of the Nigerian economy. Obegolu noted that SMEs, which are a vital part of the economy, will be particularly hard hit by the tariff increase.
“The ease of doing business is critical for fostering economic growth, attracting investments, and creating job opportunities.
“Regrettably, the increase in electricity tariffs can hinder these efforts by imposing additional financial burdens on businesses, especially SMEs, which are the backbone of our economy,” he said.
Gad Peter, executive director of Cleen Foundation, has expressed surprise at the decision to increase electricity tariffs, especially since the new government came into office with a commitment to address the issues surrounding electricity provision in Nigeria. Peter noted that the government had previously shelved the idea of increasing electricity tariffs due to the economic difficulties facing the country, and questioned why the idea was being revived now.
Peter noted that in the last month or so, electricity supply has been very erratic and unstable, which has caused significant hardship for the average Nigerian. He noted that even people with alternative sources of power, such as generators, are struggling to obtain fuel or diesel to run their generators, making it difficult to keep their businesses running and to cope with the heat.
Uket Obonga, national secretary, Network for Electricity Consumers Advocacy of Nigeria (NECAN), noted that the organisation is not so much against tariff increase but the problem is that the electricity sector has a commission/regulator that is always churning out regulations and orders but with no capacity to monitor implementation.
Ubonga explained that in 2021, the NERC implemented a service-based tariff system, which was based on the principle that the more electricity a business or household uses, the more they should pay. This system resulted in the reclassification of electricity consumers into various tariff bands, with Band A being the highest. He noted that the goal of this system was to incentivize the improvement of electricity supply, but that it has not been successful in achieving this goal.
“ We have conducted a study in some areas, particularly from Band A customers and we discovered from the sample we collected that in some states, less than five percent of those in Band A receive 20 hours.
“In Abuja for instance, we discovered that some customers never had up to 18 hours of electricity supply for 11 months but are on Band A,” he said.
Ubonga argued that the DisCos (electricity distribution companies) have been collecting revenue from Nigerians without providing the required level of electricity supply, which is a clear violation of the Multi-Tariff Order.
He noted that the order stipulates that when a DisCo fails to deliver on its committed service level of at least 20 hours for Band A, 16 hours for B and so on, consumers should be retroactively reclassified and compensated. However, he pointed out that there is no mechanism in place to measure or enforce this rule, allowing DisCos to continue collecting revenue without meeting the required supply for the clustered consumers.
According to Ubonga, while a tariff increase may generate more revenue, it is not the most effective way to reform the electricity sector. He pointed out that the country’s metering gap makes it difficult to accurately determine the number of people in the Band A category, as metres are crucial for ensuring accurate revenue collection.
Additionally, Ubonga noted that high levels of technical and commercial losses, as well as fraud, lead to significant financial losses for the electricity sector. He argued that these issues need to be addressed before increasing tariffs.
The NECAN secretary maintained that the most effective way to address the liquidity crisis in the Nigerian electricity sector is to address the significant metering gap which currently stands at about seven million. He pointed out that the current lack of metres makes it difficult for DisCos to collect revenue, leading to significant financial losses. In addition, Ubonga argued that unless the distribution of electricity is harmonised with generation, the sector will continue to face problems.
Dwelling further on the issue, he said: “Sometime in November 2022, my humble self and a few others were invited to the World Bank where we were told that the federal government was asking for additional funding of $3 billion for the power sector and they gave us a breakdown of about $9 billion that has already been spent.
“Who is tracking that money? Where has it gone? What impact has it made in the sector? The problem in the Nigerian electricity industry is not what these guys are making Nigerians to believe. It is the ability to tell Nigerians the truth of what is going on in a sector where we have DisCos posting huge revenue collections from the supply and distribution of darkness to Nigerians.”
According to Ubonga, if Nigeria is to receive a grant or loan of 2-3 billion dollars, the funds should be primarily used to address the metering gap. He stated that by increasing the metering level to at least 80 percent, the liquidity crisis in the sector would be significantly reduced. This would also reduce the amount of money that the federal government needs to inject into the sector, making it a more efficient use of funds.
