Nigeria’s eleven electricity distribution companies have long clamoured for tariffs that can guarantee commercial returns and the regulator, the Nigerian Electricity Regulatory Commission (NERC) has agreed to review tariffs by over 35 percent from April this year, but has directed DisCos to ramp remittance to the market by 45 percent to benefit from the review.
On December 31, 2019, the Commission published a review of the Multi-Year Tariff Order 2015 which guides the pricing template for electricity in Nigeria. According to section 17 of the MYTO -2015 order, the tariff should be reviewed twice every year measured against variables such as inflation rate, gas prices and foreign exchange rate and generation capacity.
According to the tariff, Abuja Electricity Distribution Company (AEDC) residential customers R3 that formally paid N27.20 per unit will now pay N47.09 while Ikeja Electricity Distribution Company (IKEDC) customers, the R3 category currently paying N26.50 per unit will now pay N36.92 per unit. Other customer classes will see between 35 percent and 40 percent increase in tariff this year.
However, this tariff increase while appreciable does not represent a cost-reflective tariff. According to the Commission, the Federal Government’s updated Power Sector Recovery Program does not envisage an immediate increase in end-user tariffs until April 1, 2020, and a transition to full cost reflectivity by end of 2021.
In the interim, NERC said the Federal Government, has committed to funding the revenue gap arising from the difference between cost-reflective tariffs determined by the Commission and the actual end-user tariffs payable by customers but all DisCos are obligated to settle their market invoices in full as adjusted to netted off by applicable tariff shortfall.
Currently, DisCos remit far less than they collect. “The level of collection efficiency during the quarter under review indicates that as much as ₦3.09 out of every ₦10 worth of energy sold during the second quarter of 2019 still remained uncollected as and when due,” NERC said in its 2019 second quarter report released in December 2019.
The Commission further said, “Similarly, during the second quarter of 2019, out of the total invoice of ₦180.08billion issued to the eleven (11) DisCos for energy received from NBET and for service charge by MO, the sum of ₦55.10billion of the total invoice was settled, representing 30.60% remittance performance.”
It is not clear how these DisCos will now settle their market invoices as well as all Federal Government intervention from the Financing plan of the PSRP for funding tariff shortfall and 100 percent invoice of the market operators.
According to the order, the minimum market remittance by each DisCo is determined after deducting the revenue deficit arising from tariff shortfall from the aggregate NBET and MO market invoices. They shall then be availed the opportunity to earn their revenue requirement only upon fully meeting 100 percent settlement of MO invoices and full settlement of 49 percent of NBET’s monthly invoices. DisCos currently settle around 30 percent of NBET market invoices.
The new order also attempts to tackle the problems of grid collapse and load rejection by DisCos. NBET will henceforth invoice each DisCo for capacity charge and energy based on its load allocation and metered energy. Where it is established that TCN is unable to deliver a DisCos’s load allocation (e.g through grid collapse) TCN shall be liable to pay for the associated capacity charge and where a DisCo fails to take the entire load allocation due to constraints in its own network, the DisCo shall be liable to pay the capacity charge as allocated in its vesting contract.
