By Comrade Gbenga Olowoyo fcia fimpa JP
The pronouncement made on the increase in electricity tariff by the Federal Government through its both Minister of Power and the management of Nigeria Electricity Regulations Commission is both ill timed and anti developmental thought.
It is very unfortunate that in Nigeria , our government derive joy in bringing up ideas that are not rationalized, justified tested and evaluated before its implementation. Government always jostle for ascribing entitlement
claim that this government did this or did that without purposeful target.
Nigerians are not unaware that different evolutionary policies have taken place in power sector which were based on trial and error approaches, these actions have contributed greatly to the woeful performance in the power sector of our economy.
With the purpose of hindsight, in 1960s the Niger Dam Authorities (NDA) and Electricity Corporation merged to form Electricity Corporation of Nigeria (ECN),
The ECN changed to Nigeria Electricity power Authority (NEPA) shortly after the Civil war in late 1970,
Former President Olusegun Obasanjo unbundled NEPA through the instrumentality of Electric Power Sector Reform Act (EPSR Act) signed into law in March 2005 and brought into fore the formation of Power Holding Company of Nigeria (PHCN)
Again , Electricity management in Nigeria was further unbundled to 11 different Distribution Companies in Nigeria ( DISCOS) with the transformations in names even the present President Tinubu administration is contemplating to unbundle the power sector again , there have been no corresponding efficient performances in the distribution of electricity to end users in Nigeria.
It is very saddened that Nigerians are undergoing torture and trauma as a result of unprecedented economic woes consequence upon the increase in prices of goods, services and essentials of life which is being compounded by electricity tariff increase.
What is Electricity Tariff ?
Electricity tariff is the rate at which electricity is sold to a consumer. These tariffs are determined by considering total production costs from generation plants to wholesale generation, transmission, distribution, metering, billing and finally to the consumer. Nigerian electricity tariffs are typically regulated by the government through The Nigerian Electricity Regulatory Commission (NERC) to ensure fairness, sustainability, and the financial viability of the power sector.
It is a statement of fact that Electricity is the bedrock of civilization, providing energy for our homes, businesses, and industries. However, the accessibility and affordability of electricity have always posed significant concerns for both consumers and policymakers. One of the critical factors influencing the electricity tariff set by utility companies is the electricity subsidy which the government claimed it pays to offset a part of this tariff costs making it affordable to its citizens.
To this end, there is need to outline the possible implications of this tariff increase in varying sectors. Some of the impacts are as follows:
Effects on Consumers: An increase in electricity rates will directly affects the consumer’s pockets, as higher rates translate into increased monthly bills, especially with already skyrocketed bills from the fuel subsidy removal. We will recall that the National Bureau of Statistics (NBS), 40.1% of Nigerians were classified as multidimensionally poor.
As such, many households in Nigeria, especially those in rural areas, are low-income households with limited disposable income, and the burden of higher electricity costs can be particularly challenging. In addition, the increased financial strain on consumers’ income can lead to reduced discretionary expenses, affecting local businesses and the overall economy.
Serious effects on Businesses:
All businesses heavily rely on electricity to function optimally. This means that eventual removal of electricity tariffs will directly impacts operational and production costs, reducing profitability and competitiveness. Energy-intensive industries, such as manufacturing, mining, and hospitality services, may experience significant challenges with the increase in electricity tariff .
Honestly speaking, the higher electricity costs may compel businesses to cut back on operations, reduce staff, or pass on the increased expenses to consumers through higher prices, ultimately impacting the purchasing power of the general population.
Class contest and class extinction
The class contest and extinction in the recently tariff increase policy pronouncement is an attempt to push middle and lower classes into extinction.
From time immemorial, even during colonial era in Nigeria, those living in Government Reservation Areas enjoy more steady power supply compare to the general populace, the classification of electricity consumers into Band A,B,C,D,and E is a terrible reminder to the yesteryears of colonial mentality; “all animals are equal but some are equal than others ” apology to George Orwell’s Animal Farm
As a matter of attestation, the disparaging comment of Minister of Power Mr Adebayo Adelabu, when he said that Nigerians will put on Air conditioner, freezers and other electrical appliances without caution, is a pointer to show that those that are privileged to be at the helms of affairs do not have good heart for the masses
The eventual apology of the Minister of Power further worsened his earlier defence when he poignantly said that he was cracking jokes with sensitive issue of increase in electricity tariff, it is very unfortunate .
The vulnerable Nigerians are seriously in for the hardship.
The classifications of Electricity users into Band
It is unbelievable and very difficult for Nigerians to comprehend that the tariff hike was aimed at making a significant cut on estimated N2.9 trillion electricity subsidy in the 2024 fiscal year just because there is cashflow constraints as a result of Federal Government inability to pay obligations to the Nigeria Electricity Market
The serious challenge is how to contend with high cost of energy, consequent upon the classification within the Band A customers who NERC said constitute 15 per cent of the total number of power users in the country.
The 240% increase in electricity tariff by the Nigerian Electricity Regulatory Commission (NERC) for Band A consumers in the country, which allowed Power Distribution Companies (DisCos) to raise electricity tariffs for affected customers to N225 ($0.15) per kilowatt-hour from N68 (effective April 1, 2024, it is an indication that Federal Government is equally set to implement close to a 300% tariff increase across board according to Minister of Power and even more in the months to come, in a bid to ensure cost-reflective energy tariffs, reduce government spending within the electricity sector.
Band A consumers, who represent just 15% of the electricity connected population but consume around 40% of the Nation’s power supply will now enjoy between 20 to 24 hours power supply daily.
“Similarly, Band B consumers will enjoy about 16 hours of power supply daily, while Band C, D and E consumers will enjoy about 12, 8 and 4 hours of daily power supply respectively.”
The 240 per cent increase in electricity tariff has further added to the burden of consumers already contending with the debilitating effects of fuel subsidy removal and the floating of the Naira in the foreign exchange market. The effect is really telling.
As those classified within the Band A category grapple with high cost of electricity, the capacity of the Discos to keep faith with the minimum of 20-hour daily power supply has also been an issue. Since NERC benchmarked the increase on the supply of at least 20 hours of electricity per a day, what remedies are there for customers in the event of default by the Discos? For now, there is no clarity on that seeming contractual agreement.
The only thing available is a threat by NERC to downgrade feeders under Band A that are unable to supply up to 20 hours of power a day. What happens to customers short-changed in the process, remains a mirage issue. But that threat says much about the criteria adopted in classifying some of these feeders under Band A. It speaks of some arbitrariness and haste in the classification process.
Not unexpectedly, the consequences of that faulty classification process are beginning to manifest. Some of the Discos have since blamed their inability to supply the required minimum of 20 hours of electricity per day on technical glitches among other challenges.
Electricity tariff hike probably with increase in gas to power price
But, this brand of discriminatory monopoly is not necessarily based on the ability to pay or some other social or demographic indicators but on the capacity of the Discos to supply at least 20 hours daily electricity to the earmarked areas. There is something strange and inherently untidy in this strategy. Perhaps, the government found itself in this contradiction in an attempt to present subsidy removal in the mould of price discrimination.
Twenty hours daily electricity supply, appears a smart way to run away from the backlash of a wholesale elimination of subsidy in the face of the glaring inefficiencies in that sector. It may also be a subterfuge to save the government from the social discontent bound to follow that police given the biting effects of those before it.
But the policy has seen some of the Discos struggling to meet the target. Only time will tell how long this will last before another collapse of the national grid.
There is the notion that those in Band A are net worth consumers that should be able to pay the new rate. This calculation may not be foolproof given the widening poverty in the land and its toll on the middle class.
The government said the price paid by customers in Band A represent the appropriate pricing for the commodity and would allow the Discos fully recover the efficient cost of operation, including a reasonable return on capital invested in the business. That could as well be.
Pre-paid metering
One of the conditions for the success of the new price regime is the installation of metres for the affected customers. Sadly, many of the customers now being made to pay the cut-throat price have no metres and have to depend on estimated billing.
Before now, estimated billing created serious challenges for most customers as they often complained of bills that bore no semblance with their consumption pattern. Unmetered customers are bound to face very serious challenges with the new tariff regime. They may end up paying for services they did not receive.
Monumental lapses have been the bane of many Policies in this country. Metering should have been done before the implementation of the so called Band A classification to ensure customers are not saddled with electricity bills they did not consume.
There is also the high cost of procuring such meters which ordinarily are the properties of the Disco. Now that the band A consumers are being charged the appropriate price for the electricity they consume, sundry expenses incurred by consumers each time there are faults in their transformers etc, should no longer have any basis. Neither will there be further reason to fund the inefficiencies of the Discos through outright or partial purchase of transformers by communities or Community Development Areas.(CDAs)
“The problem is that everybody in this country knows that this is a lie and no sector of society regularly gets a minimum of 20 hours of electricity a day. You cannot build a new policy on lies and such a huge price increase in the middle of the most severe cost of living crisis in Nigerian history” this cannot stand the test of time.
Without warning, the Nigerian Electricity Regulatory Commission (NERC) raised the electricity tariff for most urban households by 300 per cent. According to the Vice Chairman of NERC, Musiliu Oseni, Band A electricity consumers regularly get 20-plus hours supply of electricity a day and should pay much more than other consumers who get much less.
Mr Oseni said that the Federal Government had indicated a transition in policy direction towards introducing a more targeted subsidy regime, aimed at mitigating the impact of changes in macroeconomic parameters “while largely protecting vulnerable customers and fostering investments targeted at providing efficient service delivery in the Nigerian Electricity Supply Industry (NESI).” The problem is that the sudden increase is so vast that every consumer is in reality vulnerable, and such increases need to be spread over time to reduce their impact on consumers.
Privatisation of Power sector as a Policy somersault
It is now over a decade, the desired outcomes of privatisation and Federal Government interventions have not materialised and the electricity available on the national grid to light homes and power the economy has stayed at an almost constant 4,500 megawatts (MW), well below the 8,400 MW projected for 2018. One reason for this is the technical inefficiency of the grid, beginning with inefficient gas supplies, the inability of the transmission system to deploy adequate electricity, and the lack of investment by production and distribution companies.
The original sin was the mode of privatisation of the Nigerian electricity sector. It was a much-anticipated reform exercise that created much hope for Nigerians. Launched in 2010, the exercise was intended to modernise the sector and cater to the country’s growing demand for electricity.
Such inefficiencies in the sector are compounded by the ‘legacy’ corruption that has led to poor maintenance of the transmission network during state-ownership and to the presence of politically connected bidders in the privatisation process.
The design of contracts and lack of regulatory oversight further deterred credible and technically competent investors during the bidding process. The politically connected nature of many of the acquisitions also mean the government is reluctant to take any tough decision with regard to the sector.
The conditions in which consumers lack supply and firms are unable to make profits have given rise to a host of interdependent corruption mechanisms. As the sector moves deeper into loss, the space for formal earnings becomes narrower, and the perverse incentives to be corrupt deepens. This has now pushed the sector into a state of low-level equilibrium, with significant restructuring needed in order to turn things around.
Unfortunately, DisCos, have refused to provide metres to most consumers so that they can be charged what they have not been supplied. In the years since 2012, the rated or installed capacity was supposed to have increased to 12,522 MWs in 2015 but this has remained fiction. The average generation has been between 3,500 and 4,000 MWs.
Projections for the performance of the sector were based on distribution and generation companies (which are not publicly listed) reinvesting in the sector to build technical capacity. Instead, the companies started paying themselves. Dramatic increases in tariff lead to more corruption, rather than improvement in power supply. The companies have no intention of investing to improve supply. The entire reform has to be reviewed because the dual goals of increasing efficiency and investment have failed significantly.
At a recent ACE-SOAS study of the Nigerian power sector reveals that the reality is that we Nigerian consumers spend more to purchase and maintain petrol and diesel generators than we do on electricity from the grid. The power sector reform has been a total failure and for that reason Nigerians are reluctant to pay more for a supply that is erratic and fails repeatedly. It is clear that Nigeria’s power sector is unsustainable, which has repercussions for inclusive growth.
Transmission sector
The transmission sector wasn’t privatised in 2012 and government has not invested to improve it. As a result, even if Nigerian power stations are operating at full capacity, the transmission network would not be able to ‘wheel’ or transmit more than 6,000 MWs of electricity due to an ailing infrastructure. For the past decade, the actual wheeling capacity is no more than 3,000 MWs to 4,000 MWs. The Nigeria Bulk Electricity Trader (NBET) was meant to be a government-owned Special Purpose Vehicle (SPV) that pools the electricity generated and acts as an institutional backstop. This agency was meant to inject confidence in the sector but it has been facing liquidity challenges. Distribution companies are unable to provide enough power to meet demand. The DisCos have openly admitted that their companies are not viable.
Some National newspapers reported the “joint press conference organised by the 11 companies, the Chief Executive Officer of the Jos DisCo, Tukur Modibbo, announced that they were ready to give up their licence if the federal government could refund the money invested in the utility. He said: ‘We bought Jos DisCo for $82 million. We are ready to give it away for $72 million if we see buyers now. If government refunds the investors their money, we will quit the business.’” We need to see a reform that would actually improve the system, rather than sink more of our money into the mess.
The Vice Chairman NERC, Mr. Musliu Oseni, told journalists in Abuja recently 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 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 rate were major factor in the review.
Concern of notable stakeholders in Power sector
Several 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.
“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.”
In my personal view , 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 over stretched 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.
In the same vein, 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”.
This electricity tariff increase is unimaginable that government would impose such life-frustrating policies on a nation that was already on its knees.
Sadly, the NERC Vice Chair revealed that under the old Power Sector Reform Act, the powers of NERC to sanction are limited, and fines for DisCos are outdated (he cited fines as low as N10,000 per day). But with the new Act signed by President Bola Ahmed Tinubu, NERC now has expanded regulatory and sanctions powers. The Vice Chair cited the example of 2018 when NERC suspended the Ibadan Electricity Distribution Company (IBEDC) Board, which then went to Court and got the suspension set aside, versus 2024 when NERC was able to successfully dissolve the Board of Kaduna Electricity Distribution Company (KEDC) with this scenario time will tell.
How do we get out of this electricity mess in Nigeria
I wish to submit that there must be urgent need for government to re-evaluate its stance on energy and power policy so as to get out of this rotten level of electricity policy in Nigeria:
*There must be renewable energy sources
*Better governance and management of resources in relation to energy sector
*There is urgent need to switch to the alternative energy sources with strong partnership with independent power project promoters which is the global trend
*Federal government and other tiers of government should come up with both medium and long-term power strategic plans with political will and sincere heart for its implementation.
*There is need to have access to sustainable and reliable power supply which is part of strategic policy that can reduce poverty and improve economic growth instead of distribution of rice indomie, vegetable oil and other items as palliative to Nigerians.
*There is need for Capital infrastructural investment and sustainable maintenance in energy sector
*Need for massive investment in other energy sources such as; biofuels, wind energy , solar power among others.
Nigerians arise!!!
May God help our country.
Comrade Gbenga Olowoyo fcia fimpa JP, a Trade unionist and industrial relations practitioner, gbengaolowoyo3@gmail.com,
08033570338