Nigerians living in economic doomsdays amid rising prices

The average Nigerian citizen is beginning to feel the brunt of rising household utility prices that analysts had long predicted would befall the country’s economy.

Beginning from today the new higher cost of single-phase and three-phase electricity meters decreed into being by the federal government will kick in, adding to the heavy economic burdens Nigerians are now having to shoulder.

For sometime now, citizens have been living under a price hike jackboot in the form of a more than 200 percent rise in the price of liquefied petroleum gas (LPG) that has forced a good number of Nigerians to damn all the concern about Climate Change and resort to the use of charcoal and firewood as an alternative to the commodity, which is experiencing supply shortages amid excess demand as importers of LPG blame lack of government incentives for discouraging them from its importation.

The federal government in a circular on Friday, issued by the Nigerian Electricity Regulatory Commission (NERC), to all electricity distribution companies (DisCos) and all meter asset providers (MAP), said it was reviewing the unit price of end-use meters as it raised the price of a single-phase meter from the current cost of N44,896.17 to a revised price of N58,661.69, while upping the price of a three-phase meter from the current cost of N82,855.19 to a revised rate of N109,684.36.

This barrage of price increases is coming at a time when food prices are soaring, even when inflation is saying the opposite, with figures from the government statistics office showing incremental decline over a number of quarters; there is also dollar scarcity in the Nigerian foreign exchange market, which has seen the naira depreciate and forced the import dependent economy to visit hardship on citizens; a weakening purchasing power of the Nigerian naira and Nigerians, with inflation well above the nine percent projected target of the Central Bank of Nigeria (CBN) by over seven percent.

Nigeria, which is regarded as the African nation with rich reserves of gas, actually burns a lot of it as waste product because it lacks effective policy, infractural resources and the funds needed to harness it for the good use of its citizens.

A report by the National Bureau of Statistics states that only about 17 percent of the over 200 million population cook with gas as a majority of households now depend on firewood or coal-fueled stoves.  In the same token, a 2021 tracking SDG7 report puts it that Nigeria had the world’s largest energy access deficit, with 45 percent or 90 million of its population lacking access to electricity.

However, people familiar with the gas issue, say they now pay more than 200 percent of the charge per kilogramme cylinder at the start of the year as a 12.5kg cylinder now sells for over N10,000.

Before now, analysts’ concerned reactions had trailed the decision by the federal government to re-introduce value-added tax (VAT) on cooking gas, saying that the decision may bring about price pressures on cooking gas in the near future, with the average Nigerian consumer left to bear the brunt of rising household commodities and consumer food prices.

However, the federal government in a bid to widen its tax base and expand revenue sources, had taken to imposing VAT on household cooking gas, amid  its plans to tax global tech companies operating within the country, as well as, bring back tolls across the country’s roads, especially those in Lagos State, which it said could be positive, given what it made when it raised VAT at the start of the year.

Oladapo Olatunbosun, national president, Nigerian Association of Liquefied Petroleum Gas Marketers, said “Earlier this year, 20 thousand metric tonnes of gas cost about N3.8 million but the price has risen to N12 million. Over 65 percent of gas used in the country is imported from the U.S, Algeria, and some other neighbouring African countries to supplement the need. Before now, the demand for gas was very low but with time and awareness of its relevance, demand skyrocketed with over 15 percent of the Nigerian population having adopted gas usage which has gone beyond the available local facility.”

He further asserted that the price will still go higher because most of the storage facilities are empty as people are not loading at terminals due to the suspension of importation. He also said that for local investors to come in there has to be a guarantee that there is the market capacity to buy as the average income in Nigeria is low and many cannot afford to buy gas at the moment.

Also reacting to the price hike, a production supervisor, Bonny Terminal production unit at Shell Petroleum Development Company, who chose to speak on the condition of anonymity, said that asides from the importation debacle suffered by industry players, there is a huge cost in local supply as the transportation and distribution infrastructure to get LPG to consumers is below the required standard.

“Due to the huge capital requirements, domestic gas development projects are often said to be uneconomical because their economics are based on only tangible returns on investment. Many private investors do not have huge capital for such establishments and prefer importing LPG, while the consumers bear the brunt,” he asserted, while calling on the government to create an enabling environment and sustainable policies to encourage more investments by indigenous stakeholders and major players in the industry.

Meanwhile, the federal government has been asked to grant fiscal incentives to local producers to enable them to fund infrastructure development; reverse the Value Added Tax; improve access to foreign exchange; rechannel export cargos to domestic consumption, and eliminate all forms of extortion, as part of new measures needed to achieve stability in the sector.

In a related development, some experts have noted that the government is currently undergoing serious fiscal burden, arising from the consistent electricity tariff shortfalls, which has resulted in liquidity constraints across the value chain, forcing the government to intervene and cover the shortfall, forcing it to turn to increasing the unit price of end-user meters to a new price. It is understood that the federal government has set aside N327 billion in the fiscal year 2022 budget to offset the electricity tariff shortfall incurred by its ministries, departments and agencies (MDAs).

However, NERC had reported that average aggregate technical, commercial & collection (ATC&C) losses recorded by the sector hit 49.1 percent in Q2 of 2020, much higher than 15 percent that is seen as best practice internationally, and the 20.3 percent allowance as stated in the Multi-Year Tariff Order (MYTO) of 2020. It also said these losses are reflective of energy theft, low investments in distribution networks aggravated by inadequate metering of end-use customers, and pandemic-related restrictions which hindered the collection of payment due from consumers.

Analysts at FBNQuest Research Capital in a commentary note on the Nigerian power sector said “Nigeria’s huge metering gap for end-use customers also contributes to electricity tariff shortfalls as the use of estimated post-paid billing, which is the only alternative, often leads to billing and collection inefficiencies. Data from the NERC show that of over 10.5 million registered electricity customers as of H1 ‘20, only 4.2 million (40.3%) had been metered.

“The Meter Assets Provider (MAP) scheme and the National Mass Metering Programme (NMMP), which were launched to tackle this challenge have led to the metering of about 1.1 million consumers as of July ‘21. Under the NMMP, the CBN has so far disbursed NGN41.1bn to ten DisCos for the procurement and installation of over 750,000 meters nationwide,” they said.

Meanwhile, as the nation emerges from the pandemic-induced slump of 2020, analysts say there is a need for increased productivity, spurred on by economic activities, private investment, and job creation, adding that to achieve these, fixing the power sector is paramount.