By Charles Abuede and Tobias Pius
- NERC plans another hike from July 2021 in the latest order
The rouse of the New Year 2021 began as a surprise to concerned Nigerians who woke to the news of a supposed 50 per cent hike in electricity tariffs by the National Electricity Regulatory Commission (NERC) after the revised Multi-Year Tariff Order (MYTO) signed Sanusi Garba, an engineer and chairman of NERC.
The commission also claimed that the review and its supposed tariff increase are aimed at cushioning the effects of the pandemic, while providing more targeted interventions for citizens.
Many analysts, stakeholders and Nigerians spoken to by Business A.M. on this stealthy attempt by the electricity regulator, have been quick to flaw the NERC’s ineptitude, as well as the federal government’s apparent complete disregard of the economic well-being of Nigerians, while emphasizing that the timing of the ‘so-called adjustments” is irrelevant at this point, notwithstanding the face-saving directive by Sale Mamman, minister of power, about shelving the implementation of the new tariff until the end of the month.
“The decision by NERC makes them look confused and indecisive. While we understand that the DisCos need a cost-reflective tariff to operate optimally, the bone of contention is the timing for the tariff increase or what the NERC shamelessly called “adjustment” (as if there is a difference between both in these circumstances). Here, they thought it wise to increase or adjust a tariff in the middle of a pandemic when people are struggling to even meet basic needs amidst job losses, rising food prices, rising transport cost due to an increase in fuel cost, amongst other things,” was how one angry analyst put it to Business A.M.
Taking a cue rationally at the situation, it can be seen that the electricity tariffs increment couldn’t come at a worse time, where Nigeria’s economy currently sleeps in a recession, the purchasing power of the average citizen has been significantly eroded across all classes of income with the poverty situation becoming worse by the day and spiralling inflation persisting at above14 per cent in November data released by the statistician general of the federation; and amidst genuine fresh concerns about the resurgence of the COVID-19 pandemic.
In the last five years Nigeria has witnessed three tariff increments which were tendered to the 11 distribution companies, following an increase in the Multi-Year Tariff Order (MYTO) in 2015 by what customers called a 50 per cent hike at the start of February in the year 2016.
According to the MYTO template for review of tariff, increase or decrease ought to be reviewed twice a year and the results of such a review are to be implemented every six months. There was a further push for an increase in June 2016 in the face of indices such as inflation, foreign exchange rates, and a spike in gas prices, with a lesser generation capacity, although the regulatory commission, due to restraints and ineptness, could not implement at least nine of these tariffs on a biannual basis, which then accumulated until 2020.
The tender for a proposed hike in tariff in September 2020 sparked uproar between the commission, on one hand, and labour unions and concerned stakeholders, on the other hand, which led to the shelving of the intended increase by the federal government.
In November 2020, the commission pushed for an increment and was approved by the federal government a month later which now, became the supposed imposed tariff.
According to the commission, the new tariff regime which became effective January was hinged on the general state of the economy, the foreign exchange rate in the official CBN window at N379.4 to the dollar, as of December 29, 2020, the US’ 1.22 per cent inflation rate as well as Nigeria’s rising rate of inflation, which stood at 14.89 per cent in November 2020, and the power firms’ capital expenditure.
Regardless, power shortages have remained a prominent infrastructure gap to residential, commercial and industrial consumers in Nigeria. But the substantial expansion in quantity, quality and access to infrastructure services, especially electricity, is fundamental to rapid and sustained economic growth, as well as poverty reduction. Consequently, available statistics show that Nigerians spend an estimated $14 billion annually on purchasing and fuelling small-scale generators due to power shortages in the country.
Reactions by Nigerians and concerned stakeholders from were quick and sharp. The Manufacturers Association of Nigeria (MAN), reacting to the response of Sale Mamman, the minister of power, reproached the electricity tariff hike approved by the Nigerian Electricity Regulatory Commission (NERC), saying it will increase its members’ enormous spending cost of about N70 billion on self-generated electricity, disrupt forex earnings and reduce government’s tax revenue.
Nigerians have used the opportunity to remind government about the unjust treatment to get in the hands of the distribution companies, who charge customers unjustly and have refused to provide them with pre-paid meters.
Ini Ufot, who reacted via his Twitter handle said: “Nigerian economy cannot sustain this crazy adjustment. How can a family with a monthly income of about N300,000 spend N45,000 on electricity? What of rent, feeding and children school fees? This adjustment is very unreasonable at this time.”
Another Nigerian said via Twitter said: “What power do we on the demand side have. The fixed income earners are worse off; low-income economy like ours should not make lives unbearable more than we’ve had in 2020. Increment in prices of utilities like this should be in tandem with a review of minimum wage or economic policy.”
Others highlighted their encounters with Kaduna Electric, which they said has for the second consecutive month, criminally charged unmetered customers outrageous bills.
In a recent development from the federal ministry of power, it stated that Nigeria’s installed grid power generation capacity has grown from 8,000MW to 13,000MW. However, the distribution capacity is 5,000MW. For businesses located in Nigeria, self-generation of electricity places pressure on operating expenses and consumer wallets are also significantly affected by the same expense.
But due to the closure or scaling-down of operations as a result of the COVID-19 pandemic, there is reduced energy consumption by commercial and industrial customers, who cross-subsidize the power industry with their higher tariff; althouth there is an increased energy demand for residential consumption with low supply.
Meanwhile, an impending discord is likely looming by the corner. NERC in its latest order is planning another increase come July 2021, which will formally introduce a higher rate known as the CRT that it had aimed at since 2020. According to a clause in the NERC Order, the latest increment is only expected to last till June 2021, following which a Cost Reflective Tariff (CRT) is expected to raise the new cost higher from July to December 2021.