In January 2020, the Nigerian Electricity Regulatory Commission (NERC) approved a new electricity tariff. This new tariff was to be charged by the 11 Electricity Distribution Companies (DisCos) commencing from April. Highlights of the new tariff include service reflective payment for electricity consumption and increases in the charge for electricity supply across the country. According to a Premium Times review, increases ranged between 60 per cent in places like Lagos, to about 73 per cent in Abuja, and about 78 per cent in Enugu.
However, the new tariff regime had a rather abrupt pause. By the end of March, NERC was forced to postpone the commencement of the new tariff. Explanations provided for the postponement include the high number of unmetered electricity customers. According to the Commission, about 60 percent of its customers had no meter. Another reason cited was COVID-19 pandemic that impacted the ability of DisCos to roll out meters. The need for network and infrastructure upgrades was another reason for the postponement.
While NERC did not expressly announce the commencement date for the new tariff, it hinted on a minor review order which is to be issued on June 30th, 2020. But many have viewed the intended review as the commencement of the new electricity tariff. In fact, DisCos have accused the Nigerian government and NERC of trying to dissociate from the July 1 increase in electricity tariff.
Grey Points in the July 1 increase in Electricity Tariff
As Nigeria awaits the review order on June 30th, gaps in the electricity sector still raise concern. Some of these gaps were evident in the reasons stated for the tariff postponement in April. A concern bothers on metering. Another is the gross inadequacy in Nigeria’s electricity infrastructure. The third, which is an extension from NERC’s statement on the postponement, bother on the impacts of COVID-19 pandemic. As known, the pandemic has taken an unexpected toll on households and businesses in the country.
With 60 percent of electricity consumers lacking meters, the prospects of determining consumer’s true electricity consumption is bleak. While this may mean losses to DisCos, evidences suggest that lack of meters has persistently added to the woes of Nigerians. On the other hand of this challenge is the enormous cost of providing electricity meters. It is estimated that between ₦289.86 billion and ₦534.93 billion will be required to provide meters to the unmetered 6,456,275 electricity users.
Specifically, there is a need to investigate NERC’s preparedness to address the challenges it noted in March. Perhaps more has been done in the last to improve on the situation in the last three months. NERC should also highlight its improvement in the electricity infrastructure. Other subjects to be addressed include improving the quality of service and improving the supply of electricity across Nigeria. At this point in time, Nigerians need to be assured of quality delivery to ensure that they do not pay more for less.
Despite these grey areas, there are indications that the government may not renege on the increase in electricity tariff. For instance, the federal government had declined a suggestion on two-month free electricity supply for residential customers. This suggestion, which was proposed by DisCos and the National Assembly was declined due to paucity of funds and government increasing need for revenue. Thus, Nigerians must brace up for the new reality, develop alternatives, reduce electricity consumption, and lessen overall energy cost.
Consumption Reduction and Alternative Energy Sources
Mr X is a middle-class worker in Abuja who is developing his permanent residential property. On a visit to his site, you would notice the careful attention on electricity efficiency. At least five power sources were provided. These include a 15 KVA Mikano diesel generator, a 7.5 KVA Fireman diesel generator, a 3.5 KVA gasoline generator, a 5 KVA solar inverter, and the regular semi-public connection from Abuja Electricity Distribution Company (AEDC).
In addition, the apartment is modestly furnished with energy-saving appliances. Energy-saving electricity bulbs, inverter Air Conditioners (AC) and such have been installed. When Mr X was asked the rationale, he stated his around the clock need for electricity and the need to cut down on energy consumption. According to him, all his spending on the alternative electricity generation should be lesser than running on electricity from AEDC.
Although Mr X plan for electricity efficiency is the cost consuming on the onset, he argued that his spending will be justified in the long run. He will also have a constant power supply which will boost his productivity. His energy-saving measures will also reduce his service charge to AEDC. As such, the new tariff will only affect him marginally.
However, Mr X’s position raises a rather big question is in the efficiency of electricity distribution companies. Perhaps, all he has spent on setting up alternative electricity generation could have formed some of AEDC’s revenue if it were more efficient.
Expert Angle
Dr. Tobi Oluwatola, the Country Director for Solar Nigeria, noted that the new tariff will improve distribution efficiency. This should improve supply and increase competition between DisCos and alternative energy companies. In addition, Oluwatola emphasized that the new tariff is, in fact, lower than the actual cost of energy supply.
According to Tobi, the cost of electricity supply is also cheaper than to the alternative provided by diesel engine generators sets. Thus, if higher tariff guarantees more input and supply, then it is a more efficient alternative for households and businesses.
Similarly, Mr. Femi Omisanjo, an energy expert, and the delivery manager of Wayne Energy Consult noted that the new tariff has enormous potentialities. As a Service Reflective Tariff (SRT), consumers will be charged based on service level. Subscription to electricity service is voluntary and optional for consumers.
One of the prospects of the new tariff regime, as stated by the energy expert, is its ability to improve the efficiency of electricity distribution in Nigeria. As consumers pay for the true cost of power, distribution companies will generate more revenue which will in turn boost business performance. On the other hand, the new energy tariff will improve the consumer’s perception of the true cost of power. This will reduce energy waste which is common in Nigeria.
But Omisanjo warned that consumers should desist from considering electricity as a charity. Rather, the electricity supply is business and it is bound by business and investment laws. As a business, DisCos must be able to recoup investment capital and meet up with the huge cost of electricity supply. This is to ensure sustainability in the business value-change.
However, with great investment comes great responsibility. According to Omisanjo, the new tariff directly implies that DisCos are obliged to improve service efficiency. They must provide efficient distribution infrastructure and improve on metering. Without these improvements, the prospects of the new electricity tariff regime will be compromised. For instance, without improvement in metering, energy efficiency measures may not achieve the real aim. Also, consumers may not understand the true cost of power. Thus, the new tariff may not serve the purpose for which it is set up.