Suspense over planned electricity tariff hike

Electricity Grid

• NERC maintains silence over July 1 take-off
• May quietly approve new tariff
• Consumers experience vending challenges amid panic buying
• Hike unavoidable but Ill-timed, experts insist

There is apprehension in the country over the planned introduction of a new electricity tariff regime, which is expected to take off today.

With the initial denial by the Distribution Companies (Discos) and the continued silence of the Nigerian Electricity Regulatory Commission (NERC) on the issue, Nigerians are confused as to whether they would start paying more for electricity from today or not.

Meanwhile, the Manufacturers Association of Nigeria (MAN) had disclosed that the planned increase was communicated to them earlier in June, adding that they hadn’t received contrary information from the DisCos.

It could be recalled that the DisCos had jointly alerted their customers to a planned electricity tariff increase from today. Essentially, the NERC had years ago developed a mechanism called the Multi-Year Tariff Order (MYTO), under which the expected increase falls. MYTO provides a 15-year tariff path for the Nigerian electricity industry with limited minor reviews each year in the light of changes in a number of parameters such as inflation and gas prices and major reviews every five years, when all of the inputs are reviewed with stakeholders.

The DisCos, in statements sent to their consumers almost two weeks ago, and seen by The Guardian, hinged the planned increase on the MYTO, stating that the review was due to the fluctuation of the naira in comparison to the dollar in the exchange rate market.

Abuja Disco, for instance, told its customers that while some bands will have their tariffs increased to N100, others will have theirs raised higher.

“Effective July 1, 2023, please be informed that there will be an upward review of the electricity tariff influenced by the fluctuating exchange rate. Under the MYTO 2022 guidelines, the previously set exchange rate of N441/$1 may now be revised to approximately N750/$1, which will have an impact on the tariffs associated with your electricity consumption.

“For customers within band C, with supply hours ranging from 12 to 16 per day, the new base tariff is expected to be N100 per kWh while Bands A with 20 hours and above and B with 16 to 20 hours, will experience comparatively higher tariffs. For customers with a prepaid metre, we encourage you to consider purchasing bulk energy units before the end of this month, as this will allow you take advantage of the current rates and potentially make savings before the new tariffs come into effect.

“For those on post-paid (estimated) billing, a significant increment is imminent in your monthly billing, starting from August,” the AEDC said

The Ikeja Disco (IEDC) and Eko Disco (EKDC) also sent similar messages to their customers. But AEDC turned around a few days after, appealing to its customers to disregard the planned tariff increase, as approval for such increment had not been received.

“Please disregard the circulating communication, regarding review of electricity tariffs. Be informed that no approval for such increments has been received. We regret any inconvenience,” AEDC said.

In the last three to four times that tariff had been increased in the country of late, NERC had done it quietly. Efforts to get a confirmation from the commission on what Nigerians should expect from today proved abortive as members of the commission that could speak for it, all kept sealed lips.

However, a source within the commission, who pleaded anonymity, told The Guardian yesterday that NERC had, in a fresh memo, asked the DisCos to allow the first week of July pass before a decision is taken. The source, however, refused to avail The Guardian the memo.

A source at the Manufacturing Association of Nigeria (MAN) headquarters in Abuja, who preferred to remain anonymous, told The Guardian that the DisCos were only trying to save face because of the outrage and that the increase would most likely still happen, but quietly this time. He added that it was strange to them that the NERC is silent as the DisCos are claiming that there is no increment in the offing as information communicated to them says otherwise.

“It is surprising to say the least that they are denying there is no increase in the offing. In a memo sent to us earlier in June on the review and codification of eligible customer regulations (ECR) and the guidelines on the competition transition charges (CTC), they said they were consulting us on proposed amendments to the ECR and the guidelines on CTC for the purpose of strengthening the implementation of the two regulatory instruments for improved service delivery and we are aware of what that means.

No other information has been communicated to us directly, so we take it that the increase is still going to happen but they don’t want to make noise about it. I can’t begin to describe how this would affect us going forward,” he said.

President, Nigeria Consumer Protection Network and Power Sector Perspectives Coordinator, Kunle Olubiyo, also said the tariff might be increased quietly again.

“It has been done quietly in the past. It is until people start noticing changes in the unit that we will realise that it has been increased,” he said.

Meanwhile, most consumers took to Twitter yesterday over vending-related challenges as consumers engaged in panic buying ahead of today.

An end-user, Idowu Tidy, said he had bought units through his bank but did not get his token.
According to him, “please note that there is a delay in generating the token. Token will be sent shortly” was the message he got.

Akinlolu Olaniyan also expressed the same concern, noting that he sent emails and messages without getting a response.

“We need to call out Ikeja Electric on this vending issue. I feel it’s a scam to get many into the pool of recharging after the increment takes effect on July 1,” another consumer, who identified himself as Crown said.

In an attempt to improve revenue in the power sector and change the financial situation in the sector, the previous administration had approved a Service Based Tariff (SBT) approach where electricity tariff would increase twice a year.

The justification for the increase is to be based on increased power supply but the reverse is the case.

In the aspect of revenue, the distribution companies have been recording an increase in their books as they generated N681 billion from July 2022 to March 2023 but the state of electricity has remained the same or worse since the SBT came into effect.

Some stakeholders told The Guardian yesterday that the Federal Government and NERC may be delaying the implementation of the tariff increase to buy time and douse existing backlash on the development.

Coming weeks after the removal of fuel subsidy and the floating of the naira amidst rising inflation, Nigerians had cried out against the move .

The Guardian had projected that with a monthly subsidy of about N50 billion still in the electricity sector owing to revenue shortfall, the tariff hike due today would be another acid test for the President Bola Ahmed Tinubu administration’s market reforms.

Going by the NERC’s orders, in 2015, the average tariff across distribution companies (DisCos) and classes of end-users was N25/ kilowatt, in order of 198/2020, which came into effect on September 1, 2020. In the MYTO for 2022, the average tariff was N64 across classes of customers.

The foreign exchange rate used in determining the 2015 tariff was N198.97/$. N383.80/$ was used in 2020, while N441.78/$ was used in 2022. The inflation used in the 2015 MYTO was 8.3 per cent, 12 per cent was used in 2020 and 16.97 per cent in 2022.

Currently, the inflation rate is 22.41 per cent and some experts have projected that it would hit 30 per cent by the end of June given the floating of the naira and subsidy removal on PMS.

Although metering of consumers remained a mirage amidst over seven million gap, by shelving the tariff increase, the new government may have to bear the shortfall in that market arising from the changing economic indexes.

Convener and Executive Director, PowerUp Nigeria, Adetayo Adegbemle, said the power sector is dollar-denominated and as such the changes in the exchange rate would increase the shortfall in the electricity market.

“Gas is priced in dollars. That will create a shortfall for the sector. There will be a huge under-recovery,” Adegbemle said.

However, an energy economist, Dr. Percy Chukwuma-David, has said that the proposed tariff increase is ill-timed and ill-structured.

His words: “First, the purported fuel subsidy has just been removed and Nigerians are jut beginning to face harsher economic realities head-long. Federal universities are increasing fees as a result of the Federal Government’s policy on education. This is excruciating and the impact is coming to families that make up the economy of the nation. The effect of this fees increase is yet to be fully felt, as students are yet to understand what it means.

“Few months ago, electricity tariff was increased and Nigerians are still grappling with the economic consequences. Now, another tariff increase is supposed to take off today; it is not only ill-timed, it is also a bad economic strategy. The effects on industries and households, especially the informal sector, would lead to uncontrolled inflation and increased unemployment. Operation costs (Opex) of industries will shoot up, leading to increase in cost of goods and services.

Loss of jobs will likely happen, worsening our unemployment statistics for a country that the economy is seriously battered. This is too much for Nigerians to bear and I don’t know the advisers of the present government, but they need to inform him that as long as there is nothing to cushion the effects of all these, with our limited economic power, the consequences might just be too much for this government to bear.”

Chukwuma-David advised the government to ensure that economic issues are layered and a good period of time is given to enable things come to fruition, stressing that when the consequences and benefits have been realised, they could be balanced out before new policies are introduced.

He added: “Clustering all the harsh economic policies at the same time will have serious consequences and I don’t know how the government wants to manage the effects of the consequences on Nigerians. There have been some talks about palliatives, but what really is that? We don’t even understand what it means. How do they intend to structure it? Do they know the statistics of families most affected and the companies that need help of government economically and financially?

“We need to advise this government that there is a need to put in place a strategic plan for its economic policies and see them through one after the other, rather than clustering all at the same time. Nigerians are the same people at the receiving end of all these policies and it’s a wonder how people are surviving.”

The President of MAN, Otunba Francis Meshioye, in a recent television interview monitored by The Guardian, also described the increase as outrageous.

“This has been an issue over time. What we have been experiencing is intimidation over our businesses. They will go to our businesses, disconnect the electricity and nothing will happen.

“We have complained to NERC several times. We have a road map on how the tariff should be increased but you find that NERC will just increase it without due consultation. This is unfair. We need to be sure that if we agree on a road map, everyone follows that road map.”

By Kingsley Jeremiah (Abuja) and Tobi Awodipe (Lagos)

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