From July 1, 2020 electricity customers in Nigeria will begin paying for electricity based on how long they receive power daily as the Nigerian Electricity Supply Industry (NESI) will undertake a new methodology for determining how bills are structured.
BusinessDay gathered from sources in the Federal Government that the Nigerian Electricity Regulatory Commission (NERC) has negotiated six tariff bands that will ensure that payments can reflect quality of services offered. It is part of a grand plan by the government to enthrone a viable electricity market which can also pay for critical gas supplies to power plants across the country.
According to the new plan, customers have been grouped into different bands based on the number of the hours of electricity they enjoy daily.
Band A is for customers who get 20 hours of power and above daily, Band B has customers who get power for 16 hours daily, and Band C has customers who enjoy power for 12 hours and above a day. Those that enjoy power for eight hours and above are in D-band, and E-band has customers who only get four hours and above but below eight hours of power supply daily.
Under the plan, there will be no increase for customers in Band E and the consumers called lifeline customers, mostly the rural poor, irrespective of how much power they get every day.
With the declining oil prices and the consequent fall in revenue, the Nigerian government can no longer afford subsidies on electricity and now seeks to have customers who have enjoyed more stable power pay their fair share.
Therefore, the negotiated tariff model does not emphasise only recovering cost but also ensuring that customers get service that reflect what they pay for power and for the DisCos to compensate them if they are not treated fairly.
This year alone, the Federal Government will spend N380 bllion on subsidising power for Nigerians, according to a source in the government. But the bulk of this amount, about 60 percent, has gone to subsidise power for industrial customers as well as the rich who get more power daily on account of where they live – Maitama in Abuja, Ikoyi and Victoria Island in Lagos, and such enclaves for the rich and mighty in cities across Nigeria.
Now the government thinks that the rich people have enjoyed subsidised power enough and it is time for them to pay their fair share by way of higher tariffs from July 1.
According the NERC, DisCos will get a certificate of no objection when they present their plan to follow the new system and will be responsible for communicating this increase to their customers.
Some analysts have expressed concerns over the financial situation with the market and the regulator’s inability to intervene.
“It is either they live up to their billing as regulator and take hard decisions or play the ostrich,” said Chuks Nwani, an energy lawyer based in Lagos, who expressed concern over the timing of the plan.
Already, there are indications that some DisCos have begun complying.
“Following the directive of the Nigerian Electrical Regulatory Commission (NERC), with the approval of the Federal Government, on the planned electricity tariff review which will take effect on July 1, 2020, the Enugu Electricity Distribution Company (EEDC) wishes to notify her esteemed customers of this development,” said a notice from EEDC.
“This review is necessitated considering the inability of the Federal Government to continue to subsidizing the power sector, and also the need for the Nigerian Electricity Supply Industry (NESI) to continue to sustain its operations and deliver improved services to customers,” said the release signed by the DisCo’s management.
According to the agreement reached with the DisCos, if any DisCo is incapable of providing as much power as it has agreed with a customer, it will be forced to compensate the customer for the loss. For instance, if a DisCo is increasing tariff on the basis of 16 hours and in a given month it did not fulfill that obligation, it will compensate the customer.
After new tariffs kick off on the first day in July, the government will communicate to Nigerians that on the basis of the negotiations they have had with their DisCos, any time they are denied power for a time outside the agreed limit, they would be encouraged to report their DisCos to NERC and NERC will ensure they are compensated.
The Federal Government by this action is indicating that it wants to allow the market function based on commercial arrangements after spending over N380 billion on subsidies this year alone.
DisCos are now required to remit up to 90 percent of their commitment to the electricity market monthly, except for troubled DisCos like Yola DisCo which has been returned to the government following insurgency in the north.
The Federal Government has budgeted only N60bn for subsidies in 2021 and it plans that this amount will go to support the power used by the poorest of the people.
Nigeria is replete with record of failed attempts to enshrine a cost-reflective electricity tariff regime since the sector was privatised in 2013.
Firstly, the government outlined the so-called MYTO, a multi-year agenda during which government subsidy for power consumed will operate side by side with a gradual increase in tariff.
In 2015, an enhanced tariff regime was announced for implementation but the regulator shockingly reneged after political pressures on the eve of the crucial presidential election which the government then lost.
The higher tariff which will go into effect next week was meant to have commenced on April 1 but the government suspended its implementation to cushion the pains arising from the coronavirus pandemic.
This time, economists say the government, short on funds, knows it can no longer fund such huge subsidies.
