Concerns about an impending increase in electricity tariffs

  • NERC maintains silence on July 1 take-off
  • New tariff may be quietly approved
  • Consumers face vending issues amid frenzied buying
  • Hiking is unavoidable but untimely, say experts

There is widespread concern in the country about the planned implementation of a new electricity rate scheme, which is set to begin today.

With the Distribution Companies’ (Discos’) initial denial and the Nigerian energy Regulatory Commission’s (NERC’s) persistent silence on the subject, Nigerians are unsure if they will have to pay more for energy starting today or not.

Meanwhile, the Manufacturers Association of Nigeria (MAN) said the anticipated increase was conveyed to them earlier in June, and that they had not received contradictory information from the DisCos.

It may be recalled that the DisCos collectively notified their consumers of a planned electricity pricing rise beginning today. Essentially, the NERC devised a mechanism known as the Multi-Year Tariff Order (MYTO) years ago, under which the predicted increase falls. MYTO establishes a 15-year tariff path for the Nigerian electrical industry, with minor revisions occurring each year in response to changes in a number of indicators such as inflation and gas prices, and large revisions occurring every five years, when all inputs are evaluated with stakeholders.

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The DisCos, in statements written to their customers almost two weeks earlier and obtained by The Guardian, blamed the proposed hike on the MYTO, claiming that the review was necessary due to the naira’s fluctuation in the exchange rate market.

Abuja Disco, for example, informed its clients that although certain bands’ prices will be raised to N100, others’ will be raised higher.

“Please be advised that the electricity tariff will be revised upwards on July 1, 2023, as a result of the fluctuating exchange rate.” The previously set exchange rate of N441/$1 may now be altered to about N750/$1 under the MYTO 2022 rules, which would have an impact on the prices linked with your electricity use.

“The new base tariff is expected to be N100 per kWh for customers in Band C, with supply hours ranging from 12 to 16 per day, while Bands A with 20 hours and above and B with 16 to 20 hours will face comparatively higher tariffs.” Customers with prepaid meters may consider purchasing bulk energy units before the end of this month to take advantage of current pricing and potentially save money before the new tariffs go into effect.

“For those on post-paid (estimated) billing, a significant increase in your monthly billing is imminent beginning in August,” the AEDC said.

Similar communications were delivered to clients by Ikeja Disco (IEDC) and Eko Disco (EKDC). However, AEDC reversed course a few days later, advising customers to disregard the anticipated tariff hike because approval for such an increase had not been granted.

“Please disregard the widely circulated statement proposing the review of electricity pricing. Please be advised that no such increments have been approved. “We apologize for any inconvenience,” AEDC added.

NERC had discreetly increased the tariff three to four times in the last three to four years. Attempts to obtain confirmation from the panel on what Nigerians should anticipate from today were futile, as members of the commission who could speak for it all kept their mouths shut.

However, a source within the commission who requested anonymity told The Guardian yesterday that NERC had, in a new memo, asked the DisCos to wait until the first week of July before making a judgment. The memo, however, was not provided to The Guardian by the source.

According to an anonymous source at the Manufacturing Association of Nigeria (MAN) headquarters in Abuja, the DisCos were merely trying to preserve face because of the anger, and the rise would most likely still happen, albeit discreetly this time. He noted that it was unusual to them that the NERC is silent, given that the DisCos are stating that there is no increase in the works, despite information conveyed to them to the contrary.

“It is surprising, to say the least, that they are denying any increase is in the works.” In a memo sent to us earlier in June on the review and codification of eligible customer regulations (ECR) and the guidelines on competition transition charges (CTC), they stated that they were consulting us on proposed amendments to the ECR and the guidelines on CTC for the purpose of strengthening the implementation of the two regulatory instruments for improved service delivery, which we understand.

No more information has been conveyed to us directly, so we assume that the hike will still occur but that they do not want to make a fuss about it. “I can’t even begin to describe how this will affect us in the future,” he said.

Kunle Olubiyo, President of the Nigeria Consumer Protection Network and Power Sector Perspectives Coordinator, also stated that the tariff might be raised secretly again.

“In the past, it was done quietly. “We won’t realize it has been increased until people start noticing changes in the unit,” he explained.

Meanwhile, most shoppers turned to Twitter yesterday to complain about vending-related issues, as they prepared for today’s shopping spree.

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Idowu Tidy, an end-user, stated that he purchased units through his bank but did not receive his token.
“Please keep in mind that there is a delay in generating the token,” he says. “The token will be sent shortly,” he was told.

Akinlolu Olaniyan raised similar concerns, stating that he had sent emails and messages without receiving a response.

“We need to address this vending issue with Ikeja Electric.” “I believe it’s a ruse to get as many people as possible into the pool of recharging after the increase goes into effect on July 1,” another customer, Crown, stated.

The former administration authorized a Service Based Tariff (SBT) strategy in an attempt to generate revenue in the power sector and transform the sector’s financial status. The electricity tariff would increase twice a year.

The increase is supposed to be justified by greater power supply, however the opposite is true.

In terms of revenue, distribution companies have seen an increase in their books, with N681 billion generated from July 2022 to March 2023, but the state of power has remained the same or worse since the SBT went into force.

Some stakeholders informed The Guardian yesterday that the Federal Government and NERC may be delaying the tariff rise to buy time and quell the existing outcry.

Nigerians have reacted angrily to the withdrawal of fuel subsidies and the floating of the naira in the midst of growing inflation.

The Guardian predicted that, with a monthly subsidy of around N50 billion remained in the energy industry due to revenue shortage, today’s pricing hike would be another litmus test for President Bola Ahmed Tinubu’s market reforms.

According to NERC regulations, the average rate among distribution companies (DisCos) and end-user classes in 2015 was N25/kilowatt, in order of 198/2020, which went into effect on September 1, 2020. The average tariff in the MYTO for 2022 was N64 across all customer groups.

The 2015 tariff was calculated using the N198.97/$ foreign exchange rate. In 2020, N383.80/$ was used, while in 2022, N441.78/$ was utilized. The inflation rate considered in the 2015 MYTO was 8.3 percent, 12% in 2020, and 16.97% in 2022.

The current inflation rate is 22.41 percent, and some analysts predict that it will reach 30 percent by the end of June due to the floating of the naira and the withdrawal of PMS subsidies.

Although consumer metering remained a phantom despite a seven million gap, by postponing the tariff rise, the new administration may be forced to cover the shortfall in that market caused by changing economic indicators.

Adetayo Adegbemle, Convener and Executive Director of PowerUp Nigeria, stated that the power sector is dollar-denominated, and that changes in the exchange rate would exacerbate the electrical market’s shortfall.

“Gas is measured in dollars. This will result in a shortfall for the industry. “There will be a significant under-recovery,” Adegbemle said.

Dr. Percy Chukwuma-David, an energy economist, has remarked that the planned tariff hike is both ill-timed and poorly organized.

“First, the purported fuel subsidy has just been removed, and Nigerians are just starting to face harsher economic realities head-on,” he says. Fees at federal institutions are rising as a result of the federal government’s education policy. This is excruciating, and the impact is being felt by the families who make up the nation’s economy. The entire impact of this tuition hike has yet to be felt, as students are still unsure what it implies.

“The electricity tariff was raised a few months ago, and Nigerians are still dealing with the economic consequences.” Another tariff rise is set to go into effect today, which is not only untimely, but also a poor economic plan. The consequences for industries and households, particularly the informal sector, would be uncontrolled inflation and rising unemployment. Industry’s operating costs (Opex) will skyrocket, resulting in higher prices for goods and services.

Job losses are likely, exacerbating our unemployment numbers in a country whose economy is severely harmed. This is too much for Nigerians to bear, and while I am not familiar with the current government’s advisers, they should inform him that as long as there is nothing to cushion the effects of all of this, with our limited economic capacity, the implications may be too much for this government to bear.”

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Chukwuma-David recommended the government to ensure that economic issues are layered and that adequate time is given for things to come to completion, emphasizing that once the repercussions and advantages are seen, they can be balanced out before new policies are implemented.

“Clustering all of the harsh economic policies at the same time will have serious consequences,” he warned, “and I’m not sure how the government intends to manage the consequences on Nigerians.” There has been some discussion about palliatives, but what exactly are they? We don’t even know what it means. What structure do they propose to use? Do they have statistics on the households most affected and the businesses that require economic and financial assistance from the government?

“We need to advise this government that it needs to implement a strategic plan for its economic policies and see them through one by one, rather than clustering them all at once.” Nigerians are the same people who are suffering as a result of all of these policies, and it is a marvel how people are living.”

The President of MAN, Otunba Francis Meshioye, described the increase as ridiculous in a recent television appearance watched by The Guardian.

“This has been an issue for a long time. What we’ve been dealing with is business intimidation. They will come to our businesses, turn off the power, and nothing will happen.

“We have filed several complaints with NERC.” We have a plan for how the tariff should be raised, but NERC just raises it without consulting anyone. This is unjust. We must ensure that if we agree on a road map, everyone follows it.”

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