The electricity tariff is expected to rise by more than 40% in the coming days, posing a threat to the country's energy subsidy system and forcing Nigerians to prepare for more difficult times.
According to the Guardian, the tariff increase that is scheduled to take effect on July 1 may serve as yet another severe test for the market reform implemented by President Bola Ahmed Tinubu's administration because the electricity sector still receives a monthly subsidy of approximately N50 billion as a result of a lack of revenue.
The administration has already complicated the price-setting process for the Nigerian Electricity Regulatory Commission (NERC) 2022 Multi-Year Tariff Order (MYTO) by removing subsidies for Premium Motor Spirit (PMS) and introducing the naira.
NERC's current Service Based Tariff (SBT) was compared to an exchange rate of N441/$ and inflation of 16.97%, but power sector players have not been able to meet the requirement of supplying at least 5,000 megawatts per year.
According to NERC orders, the average tariff for distribution companies (DisCos) and end-user categories was N25 kilowatt in 2015, according to order 198/2020, which went into effect on September 1, 2020. The average price per kilowatt increased to N60; For 2022, the MYTO's average tariff for all customer classes was N64.
The rate of N198.97/$ was used to calculate the tariff in 2015, N383.80/$ was used in 2020, and N441.78/$ was used in 2022. Inflation was calculated at 8.3% in the 2015 MYTO, 12% in 2020, and 16.97% in 2022.
Given the floating of the naira and the elimination of PMS subsidies, some experts have predicted that the inflation rate will reach 30% by the end of June.
Gas prices, losses, and actual generation capacity are additional factors in determining the tariff, which came at a time when the metering gap remained at over seven million.
The prevailing floating of the naira and a spike in inflation are expected to move the new average tariff to about N88/kilowatt for the sector to recover the cost. However, NERC's projected tariff for July 2023 was expected to remove the subsidy and increase the previously frozen tariff bands D and E, increasing the bands from N54.59/kilowatt to N62.16 for band D and N48.37/kilowatt to N61.16 on average with an average
The majority of stakeholders in the electricity industry believe that, despite the fact that the increase is unavoidable as a result of the changes in the parameters, households and small businesses, which are supposed to power the economy, may face serious issues as a result of energy costs alone rising to over 70% as purchasing power remains a challenge in the face of unemployment and poverty.
From 17 power plants, 3,057.7 MW of electricity was available on the grid. Following the persistent push to ensure that DisCos fulfill 100% of their remittance orders, the average load intake of all DisCos over the past four months has reached 3,000MW.
Stakeholders have expressed concern that the Nigerian Electricity Supply Market may face more challenges managing the outlook as a result of the apathy that may come from consumers who are losing hope in the system and resorting to alternative energy. With the question of affordability emerging as a major consideration as the grid remains unreliable, forcing it to make losses, consumers may resort to alternative energy.
Prof. Wunmi Iledare, an energy expert, said that the restructuring of the foreign exchange market raises concerns because it appears to be a devaluation of the naira. He also said that he is uncomfortable putting the blame for decoupling Nigeria's economy from forex instability on cutting subsidies and paying the right tariff.
Even if electricity tariffs and petroleum products rise to a not-too-comfortable market-clearing price, he claims, people must support the government in its effort to stop the dollarization of its economy.
However, Iledare questioned the country's current energy pricing and stated that PMS pricing, which remained unchanged following the NNPC announcement, is anticompetitive due to the dominant firm market structure.
In the electricity market, price increases cannot be solely dependent on forex. In a low-cost industry that produces essential commodities like power, market fundamentals are crucial to rate determination,” Iledare pointed out.
Madaki Ameh, an energy lawyer, said that the Consumer Protection Council or a group of electricity consumers should address the never-ending upward reviews of power tariffs because they have become a form of extortion against customers.
Due to the fact that the majority of the inputs necessary for the supply of electricity are local, it is a huge mistake to base the cost of electricity on the dollar. Ameh stated, "The DisCos are also holding Nigerians hostage by failing to increase the supply base, thereby spreading the tariffs across a broader spectrum of consumers to reduce the unit cost of electricity." He insisted that the few consumers who are connected to the grid would continue to be subjected to unfair tariffs that do not reflect the quality of service provided as long as there are many consumers who are not metered and many others who are not connected to the grid at all.
Ameh hoped that “the beginning of light at the end of the long tunnel of inefficient and epileptic power supply in Nigeria” would occur upon the enactment of the new Electricity Act.
According to Kunle Olubiyo, president of the Nigeria Consumer Protection Network, "it will affect the tariff template and result in an upward review of electricity tariff." Although the benchmark for the most recent major review of the electricity tariff was $1/N400, the harmonisation of the exchange rate and the floating of the Naira put the exchange rate at approximately N750/$. As significant as this might be, two things are very basic to help in accomplishing a shared benefit for the interest and supply side of the coin. Olubiyo stated that he requested the government investigate gas pricing and align it with domestic gas obligations. Moving forward, governments should liberalize end users' customers' access to effective metering and mass metering through relevant regulatory institutions.
Olubiyo stated;
"Gas to power generation plants/thermal plants should be allowed access to gas that should be traded in local currency."
Lanre Elatuyi, an electricity market analyst, stated that the new tariff rate would affect the price. He also emphasized that the "naira devaluation is a big challenge to companies with dollar loans to pay" development would affect power generators with dollar loans repayment obligations.
To purchase a dollar today, they will require more naira. They must control their exposure to currency risk. Concession fees are paid in dollars by hydro plant operators as well. As a result, the wholesale electricity price will rise, which will also affect the prices paid by end users.
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