Nigerians vend massively ahead of July 1 electricity tariff increase

In the past week, rumours have been circulating that electricity distribution companies in Nigeria will raise tariffs starting from July 1, 2023.

In response, customers have been advised to purchase large quantities of electricity units before this date to take advantage of lower rates and outsmart the DisCos before the rumoured tariff increase.

Despite the DisCos denying these claims, some Nigerians have rushed to buy significant amounts of energy credits. These rumours emerged as a result of projections made by electricity sector analysts, who anticipate that tariffs may increase due to the unified exchange rate.

A recent Nairametrics report supports this claim, stating that electricity prices are expected to rise due to the unification of the naira and its subsequent depreciation. According to the report, electricity prices are expected to rise due to the unification of the naira and the depreciation of the currency.

In the cited report, Dr Damilola Oluwole, a Director of Energy Markets and Rates Consultants, explained that current electricity tariffs are designed with the inflation rate taken into account. According to Dr. Oluwole, the foreign exchange (FX) rate used in the tariffs is based on the average CBN rate from the past six months, with a 1% premium added to it.

At the time, Dr Oluwole had stated:

“From FMDQ’s website, the I&E window closed at USD/NGN 663 on Friday 16th June. If we assume that figure is used for December 2023 tariffs and hold all other factors constant, an increase of about 25-30% in average tariffs can be expected for some distribution companies (DisCos)”.

Also, Odion Omonfoman, the CEO of New Hampshire Capital, an electricity consulting company, told Nairametrics that two key factors are used in determining end-user tariff adjustments – inflation rate and foreign exchange rates. According to him, the fluctuation of exchange rates means that the fixed exchange rate used in the MYTO 2022 is no longer valid.

So, the Nigeria Electricity Regulatory Commission (NERC) will need to establish a new methodology to compute the applicable exchange rate during tariff adjustments and Nigerians can expect higher electricity tariffs from July 2023.

Reaction from the NLC
Following the news of a possible electricity tariff increase, the NLC president, Joe Ajaero released a statement demanding that the Federal Government halts the proposed 40% increase in electricity tariffs from July 1, 2023. According to his statement, the NLC considered the tariff hike to be insensitive and callous, expressing concerns about its impact on consumers, particularly the poor.

A part of the NLC statement also read:

“The market economies which the market fundamentalists seek to emulate have in place socio-economic safeguards which we do not have. In light of this, our advice is that this proposed tariff hike should be shelved for our collective safety.”
However, the Abuja Electricity Distribution Company (DisCo) has denied the rumours of such a tariff increase.

According to them, Nigerians need to ignore the information circulating in the media about the review of electricity tariffs. The Abuja DisCo further stated that they have not received any approval for such increases.

But, checks by Nairametrics show that some Nigerians have decided to act on the rumours, purchasing higher amounts of electricity units, in an attempt to “game the system”.

Akantre Omuji, an Abuja resident in Band A tariff class, told Nairametrics that he plans to purchase up to N12,000 worth of electricity units today the last day of June, as opposed to his usual N5000. This is because he hopes that the unit at the increased rate, will serve him for the whole month of July and beyond before he has to buy at increased rates.

When told that the news of a definite increase in tariffs is just a rumour, he said he would prefer to be wrong than to be caught unawares. Also, Barr. Ejike Thompson, an Abuja resident in the Band B tariff class, told Nairametrics that prior to the rumour circulation, he purchased N2000 worth of electricity units at a time.

However, he was mulling the idea of purchasing thrice that amount so as to be on the safe side. According to him, the Nigerian system has taught him to beware of initial public denials as they could lead to action steps in the opposite direction later on.

Mary Odibo, a Lagos resident told Nairametrics that as soon as she received a purported WhatsApp message from Eko DisCo through a family member last week, she made up her mind to get extra units that will last her household till the fourth quarter of the year. According to her, the electricity tariff increase is inevitable and will still happen, so, she would rather be safe than sorry.

Meanwhile, Mrs Yinka Johnson, an Abuja resident said she plans to purchase N30,000 worth of electricity units today for her residence which also doubles as her place of business. Mrs Johnson told Nairametrics that her home and fashion design business has survived on N6,000 worth of electricity units per month under the Band B tariff class for a long time.

However, she is not ready to start buying at increased rates per kilowatt hour just yet, so, she wants to buy as many units as possible to last her for months before she has to buy at new rates. She emphasized that the tariff increase will happen eventually because it is inevitable.

Impact on DisCos
The massive vending by electricity consumers could affect distribution companies in the long run. This is because the energy bought by these customers is at today’s price and will need to be accounted for in the future.

In its Q4 2022 Electricity Report, the Nigerian Electricity Regulatory Commission (NERC) stated that is concerned about the low billing efficiency reported by the DisCos and the impact on the financial sustainability of the Nigerian Electricity Supply Industry (NESI). NERC also stated that efforts are being made to reinforce DisCo infrastructure to reduce technical losses, improve consumer enumeration, and customer service, and improve metering systems.

According to the NERC report, in Q4 2022, five DisCos recorded billing efficiencies above 80% with Ikeja Disco recording the highest billing efficiency of 89.12%. Others were:

Benin: 87.29%
Eko: 89.02%
Ikeja: 89.12%
Jos: 80.28%
Port Harcourt: 82.04%.

Meanwhile, Kaduna was the only DisCo that recorded a billing efficiency below 50% in Q4 2022 at 47.66%. This means that Kaduna DisCo lost about 52.34% (283.68GWh) of the energy it received in Q4 2022 to a combination of technical and commercial losses.