Electricity: Concerns as tariff hike hits consumers

The Nigerian Electricity Regulatory Commission, NERC, has indicated that a total of 1,974,385 electricity consumers would be affected by its recent hike in tariff.

Vanguard learnt that the tariff hike was aimed at making a significant cut on estimated N2.9 trillion electricity subsidy in the 2024 fiscal year.

It was further learnt that the hike became inevitable following cashflow constraints arising from FG’s inability to pay obligations to the Nigeria Electricity Market.

The NERC, on Tuesday, hiked electricity tariff for Band A customers by 230 percent from N68 per kilowatt hour to N225/kWh.

Band A customers are those that receive an average daily supply electricity supply 20 hours or more. With the new order issued by NERC, Band A would no longer enjoy Federal Government subsidy on electricity.

The NERC said yesterday subsidy payments across the bands has become unsustainable.

Recall that President Bola Tinubu had, since July 1, 2023, frooze electricity tariff at December 2022 level with a promise to pay the difference as subsidies. But the government has so far failed to pay any amount to the market, leading to the accumulation of N3.5 trillion debts to power generation companies and gas suppliers.

The Vice Chairman, NERC, Mr. Musliu Oseni, told journalists in Abuja yesterday that in order to ensure that only customers who receive at least 20 hours of electricity daily are on Band A, the number of feeders that meet the threshold has been reduced from 875 to less than 500.

He explained that only 15 percent of the 13,162,572 electricity customers nationwide would be affected by the tariff increase while the remaining customers would continue to pay the old rate until supply improved and they are migrated to the new Band A.

NERC expressed the hope that the additional revenue would attract investments into the sector, adding that it would deploy several tools to ensure that customers in Band A would get the daily hours of supply from electricity distribution companies, DisCos.

He stated that the cost of electricity has gone up significantly since the Multi-Year Tariff Order 2024 effect on January 1, stressing that the decision by the government to increase the price gas to power from $2.18/MMBTU to $2.42/MMBTU and the rise in foreign exchange rate were major factor in the review.

He noted that because the tariff payable by customers remained the same despite these changes, the performance of the generation companies was affected because they could not pay for gas.

Meanwhile stakeholders, economists and industry experts have explained that the increase in tariff would culminate in high utility bills, gross reduction in consumers’ disposable income, high operational costs for businesses, high prices of goods and services, which is capable of impacting negatively on low income earners in Nigeria.

Experts, who spoke with Vanguard in different interviews, yesterday, said it could push more people into poverty, even as inflation and foreign exchange crisis continue to impact households and businesses.

It’s unacceptable, a recipe for unrest — TUC

Reacting, Deputy President of the Trade Union Congress of Nigeria, TUC, Dr Tommy Okoh, said the hike is unacceptable and a recipe for unrest, urging the government to allow the poor to breathe.

According to him, “The hike in the electricity tariff from 66/kwh to 225/kwh for people who enjoy electricity supply for 20 hours per day is totally unacceptable and a recipe for unrest.

This shows clearly that Nigeria is not ready for 24 hours electricity supply. As we speak, you cannot point anywhere in Nigeria that people are enjoying 20 hours of electricity supply not even at the airport where it is expected for economic reasons. We think the government has goofed again especially at this time of socioeconomic challenges where the cost of living is very exorbitant and the salary of the workers remained static.

“Today, we are still battling with the fuel subsidy removal without any corresponding remedy and yet the increase in the electricity tariff without the supply of electricity. This government should know that they were not voted into office for the enslavement of the citizens but to protect and better the lots of the masses. This is an indication that the poor can no longer breathe.”

It could strain household budgets - Oseni

An energy expert, who spoke condition of anonymity said: “The most immediate impact on consumers would be higher electricity bills. With increased tariffs, consumers would have to pay more for the same amount of electricity usage. This could strain household budgets, especially for low and middle-income families.

“Increased electricity bills would leave consumers with less disposable income to spend on other goods and services. This could lead to reduced spending on non-essential items, impacting various sectors of the economy.

“Facing higher bills, consumers may opt to reduce their electricity consumption to manage costs. This could mean cutting back on non-essential appliances or adopting more energy-efficient practices. While this could lower electricity bills, it may also impact comfort and productivity levels in households.

“The burden of increased electricity tariffs may disproportionately affect low-income households, exacerbating existing social and economic disparities. It could push more people into poverty or deepen the financial struggles of vulnerable populations.

Fundamental issues need to be addressed - Yusuf

Similarly, the Chief Executive officer, Centre for the Promotion of Private Enterprise, CPPE, Dr. Muda Yusuf, said: “The power sector issue has become a major conundrum in the economy. There is a major funding and liquidity crisis which is posing significant risk to investments in the electricity value chain.

“Costs across the chain have been rising as a result of the multiple macroeconomic headwinds.

Meanwhile, the system is not generating the desired liquidity to match the escalating costs. Tariff review is thus inevitability. And there is a limit to the subsidy burden the government can continue to bear.

“But it is noteworthy that the increase is not across board as only 15% of electricity consumers are affected. And this is targeting the segment with the highest ability to pay. This reflects some attributes of equity in pricing.

“But some fundamental issues need to be addressed in the electricity value chain. There are issues of technical and commercial losses which are yet to be addressed. These are inefficiencies costs that consumers are compelled or expected to pay for as part of the cost recovery argument. And these costs are in billions of naira. There is also the exploitative practice of estimated billing. Millions of electricity consumers are yet to be metered.

“There is the problem of over centralization of the power supply through the national grid model. There are capacity issues with some of the electricity Distribution Companies, contributing to the lapses in electricity delivery outcomes”.

It will lead to rise in operating costs for businesses - Egbomeade

Reacting as well, Communications & Economy expert, Clifford Egbomeade, said: “The recent decision by the government to increase electricity tariffs by approximately 230% carries significant economic implications for both businesses and consumers alike. One immediate effect is the rise in operating costs for businesses, particularly those with high energy consumption, such as manufacturing industries. This could lead to reduced profitability and potential layoffs as businesses seek to offset the increased expenses. Moreover, higher production costs may ultimately be passed on to consumers in the form of higher prices for goods and services, thereby impacting consumer purchasing power and potentially contributing to inflationary pressures in the economy.”