DisCos await NERC’s nod to increase electricity tariffs

There is confusion over the purported plan to hike electricity tariffs from July 1.

It follows conflicting directives by the distribution companies (DisCos) and the regulatory body.

Yesterday, the DisCos clarified that they had not got the approval of the Nigerian Electricity Regulatory Commission (NERC) to hike tariffs.

Also, the Abuja Electricity Distribution Company (AEDC) backtracked on its earlier announcement of a tariff increase, barely 18 hours after it issued a notification.

An economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the proposed review smacked of insensitivity.

His position is in line with that of the Manufacturers Association of Nigeria (MAN) and other business organisations.

Waiting game

The AEDC, in a public announcement to its customers, urged them to ignore its previous announcement of upward tariffs review.

The company noted that NERC was yet to approve the increase.

It said: “Please, disregard the communication circulating in the media regarding the review of electricity tariffs.

“Be informed that no approval for such increment has been received. We regret any inconvenience.”

Two days ago, the AEDC issued a public service announcement that it would increase its tariffs effective from Saturday because of the exchange rate that has soared from N441 in 2022 to N750.

But the recanting of AEDC on its previous announcement is not surprising given the sensitive nature of the subject.

Sources said the DisCo may have buckled under pressure to put the review on hold.

DisCos contacted feigned ignorance, saying that NERC is the appropriate body to speak on tariffs.

They also clarified that they had not received a directive on tariff increase from NERC.

General Manager, Public Affairs of NERC, Dr. Usman Abba-Arabi, could not be reached by phone for confirmation.

Messages sent to his Whatsapp number had not been responded to as of last night.

“We have not been advised or directed on such. The NERC is the only body that can order us on tariffs review and we have not received any correspondence on this from NERC. So, we are also watching the speculation that has filled the air,” a senior manager in a leading Lagos-based DisCo said.

Top officials of some DisCo, speaking on condition of anonymity, noted that going by the development in the forex market, consumers needed to be aware that what operators budgeted for at the old exchange rate of N441 to a dollar has since spiked. The implication is that more money is expected to be pumped into providing the required service to consumers.

Electricity tariff review, either increase or decrease, is a bi-annual exercise as provided for in the Multi-Year Tariff Order (MYTO) schedule for the sector.

Relying on Section 76 of the Electric Power Sector Reform Act (EPSRA) 2005, the NERC adopted the MYTO methodology for electricity pricing in Nigeria, which sets out the basis, pricing principles and procedures for effecting minor and major reviews of electricity tariffs in Nigeria.

The MYTO provides a tariff path for the electricity industry, with biannual minor reviews to take into account the impact of changes in a limited number of parameters, specifically inflation, dollar exchange rate to naira, natural gas price and available generation capacity, and major reviews every five years.

Similarly, Section 9 of the ‘‘Regulation on Procedures for Electricity Tariff Reviews in the Nigerian Electricity Supply Industry’’ allows for Extraordinary Tariff Review.

The proposed increase is coming in spite of the fact that operators have not been able to meet the threshold of supplying, at least, 5,000 megawatts a year after signing contracts with NERC.

NERC’s current Service Based Tariff (SBT) was benchmarked on an exchange rate of N441/$ and inflation of 16.97 per cent. Currently, the inflation rate is 22.41 per cent, a figure that experts say may hit 30 per cent by the end of the month, given the floating of the naira and petrol subsidy removal.

Review lacks justification, says Yusuf

Yusuf faulted the proposed increase, saying that the timing is wrong. He said though DisCos are private companies, their services are of great social significance.

He said: “It is often a dilemma when the private sector is playing a dominant role in the delivery of a service, which is social in nature or quasi-social. Nonetheless, it is difficult to accept the exchange rate argument to justify the increase. The truth is that for over 80 per cent of companies, product pricing has always been based on parallel market exchange rate, or close to it.

“Not up to 20 per cent of companies had unfettered access to the official forex window for all their forex needs.”

Yusuf said the forex unification argument being put up by the DisCos cannot justify the proposed tariff increase.

The CPPE boss, an advocate of a free market economy, nevertheless warned that contemplating such an increase at this period when Nigerians are still grappling with the shocks of the fuel price increase is wrong.

He said: “It is most inappropriate and even insensitive to come up with a price increase of such magnitude at this time when many households are still struggling to adjust to the phenomenal increase in petrol prices.

“We need social stability for any business to thrive. Many other businesses are also impacted by the exchange rate unification. But not many have increased prices so phenomenally.

“The DisCos seem to be taking advantage of monopoly privileges.

“We recommend that both the timing and rate of tariff changes should be reviewed in the interest of social stability.”