Nigeria's foremost Online Energy News Platform

Nigeria’s Electricity Tariff Hike and the Hurdles to Cross

In recent times, Nigeria has been grappling with an issue that affects every citizen’s daily life: the surge in electricity tariffs. The topic has sparked widespread debate, from bustling marketplaces to the halls of government. This feature delves into the intricacies of the electricity tariff hike, and its ramifications on Nigerian households and businesses, and proposes potential solutions to mitigate its impact.

By William Emmanuel Ukpoju

The question ‘if this was the right time to increase electricity tariffs in Nigeria’ is complex and involves various factors. Recently, there has been a significant increase in electricity tariffs for ‘wealthier consumers’ by 230%, intended to end grid collapses and attract investment into the sector. However, this move has caused outrage among the populace, with concerns that it will lead to higher inflation, job losses, and closures of businesses. Additionally, electricity workers have demanded a reversal of the new tariff increase, citing its economic and social impacts.

The Nigerian Electricity Regulatory Commission (NERC) increased electricity tariffs for Band A customers to N225/KWh, affecting about 15% of the 12 million electricity consumers in Nigeria. This category includes households benefiting from up to 20 hours of electricity supply per day. The decision, according to the Commission, is ‘part of a broader strategy to draw investment into the sector and improve the power grid’s performance’. This tariff revision follows a recent increase in the base price for natural gas by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). The cost of natural gas, a vital fuel source for electricity generation in Nigeria, has risen from $2.18 to $2.42 per metric million British thermal unit (MMBTU). This increase in gas prices has likely influenced the decision to adjust electricity tariffs, reflecting the interconnectedness of energy markets in the country.

It is important to cogitate the timing of such increases, as they can have widespread effects on the economy and society. The government’s rationale is that the increase will only affect a small percentage of customers, mostly manufacturers, and is necessary for sector improvements. Nevertheless, the public reaction suggests that many are concerned about the immediate negative consequences of such a policy change and the ripple effect of production cost transfer on ordinary citizens by most business owners.

In the end, the ‘right’ time for such an increase depends on balancing the need for infrastructure investment and the capacity of consumers to absorb higher costs without undue hardships. It is a decision that needs careful consideration of the short-term and long-term impacts on all stakeholders involved.

This proclamation from the Nigerian Electricity Regulatory Commission (NERC) outlines several key points regarding the regulation of electricity tariffs and the direction of policy in the Nigerian Electricity Supply Industry (NESI). Here’s a breakdown of the key points:

1.  Mandate of NERC: NERC is mandated to allow electricity licensees to charge rates that cover the full cost of their efficient operation and provide a reasonable return on investment.

2.  Transition in Policy Direction: The Federal Government of Nigeria is shifting towards a more targeted subsidy regime aimed at mitigating macroeconomic changes while protecting vulnerable customers and encouraging investments for efficient service delivery in NESI.

3.  Tariff Review Process: NERC conducted a thorough review of tariff applications from electricity distribution companies (DisCos), considering performance improvement plans and holding public hearings involving stakeholders.

4.  Objective of Tariff Review: The primary goal of the tariff review is to create a financially sustainable electricity market that provides adequate and reliable power supply to support the Nigerian economy.

5.  Revised Rates: NERC has approved revised rates affecting only customers classified under the Band A service category (approximately 15% of customers). These customers are expected to receive a minimum average supply of 20 hours/day.

6.  Impact on Subsidies: With the approved tariffs, subsidies for the 2024 fiscal year are expected to reduce significantly, aligning with the government’s realignment of the subsidy regime.

7.  Monitoring and Enforcement: NERC has established a robust monitoring framework using technology to ensure transparency and accountability. An enforcement and compensation mechanism is in place for service failures.

8. Commitment to Service: NERC, in collaboration with policymakers, is committed to providing adequate and reliable electricity to all citizens and is working with state governments to achieve the goals outlined in the Electricity Act 2023.

Overall, the above points emphasize NERC’s efforts to balance the needs of consumers and investors while ensuring the sustainability and reliability of the electricity market in Nigeria.

Looking at the above-stated points, it is important to note that tariff hikes alone may not be sufficient to address all the challenges facing Nigeria’s electricity sector. Structural issues such as inadequate infrastructure, transmission constraints, gas and fuel supply challenges, and governance issues also need to be addressed comprehensively through policy reforms, investment, and institutional capacity building.

Additionally, efforts to diversify the energy mix, promote renewable energy deployment, improve governance and regulatory frameworks, and enhance transparency and accountability are essential for building a financially sustainable electricity market that can support the long-term economic growth and development of Nigeria.

The NERC has stressed that it is working in collaboration with policymakers to provide adequate and reliable electricity to all citizens and is working with state governments to achieve the goals outlined in the Electricity Act 2023.

NERC’s commitment to providing adequate and reliable electricity to all citizens is commendable, its realisation however, hinges on effective implementation, effective communication and collaboration with consumers, policy coherence, financial viability, and transparency. Continued efforts and sustained political will are essential for translating this commitment into tangible improvements in Nigeria’s electricity sector. In other words, beyond mere rhetoric, the NERC must ensure that Discos deliver at all costs. The NERC and other relevant stakeholders must prioritize public accountability and transparency in their actions and decisions. Regular monitoring, evaluation, and reporting mechanisms can help track progress, identify bottlenecks, and address gaps in service delivery.

Ensuring the financial sustainability of electricity provision is also essential for delivering an adequate and reliable power supply to all citizens. This involves addressing issues such as tariff rationalization, revenue collection, subsidy targeting, and cost recovery mechanisms. NERC’s commitment to providing electricity must be accompanied by measures to enhance the financial viability of electricity utilities and attract private sector investments.

The effectiveness of NERC’s commitment also depends on the clarity and coherence of the policy and regulatory framework governing the electricity sector. The Electricity Act 2023 provides a roadmap for reform, but its successful implementation requires consistent enforcement, stakeholder engagement, and periodic review to adapt to evolving circumstances.

Working with state governments is vital for the success of electricity sector reforms and initiatives. State governments play a dynamic role in land acquisition for infrastructure development, enforcement of regulations, and addressing local-level challenges. Collaborative efforts between NERC and state governments can facilitate the implementation of policies outlined in the Electricity Act 2023 and fast-track progress towards achieving universal access to electricity in Nigeria.

Despite commitments from regulatory bodies, the electricity sector in Nigeria is still confronted with numerous challenges, including inadequate infrastructure, corruption, vandalism, power theft, transmission losses, power grid collapse, low generation, distribution inefficiencies, and revenue collection issues. Overcoming these challenges requires not only regulatory measures but also significant investments, security and technological upgrades, and operational improvements.

Alongside tariff adjustments, it is essential to resolve regulatory challenges, ensure transparency, and enforce compliance to create a conducive environment for sustainable growth in the electricity market. This includes measures to curb corruption and energy theft, streamline licensing processes and foster competition while safeguarding consumer interests. As it stands, for the average Nigerian household, the electricity tariff hike represents a heavier financial burden. With incomes stretched thin already, families are forced to make difficult choices between paying inflated bills and meeting other essential needs. In a country where access to reliable electricity remains a luxury for many, this hike threatens to widen the gap between the haves and the have-nots.

Similarly, businesses across various sectors are also feeling the heat of soaring electricity tariffs. Small and medium enterprises, which are the backbone of Nigeria’s economy, are particularly vulnerable. For these enterprises, which operate on slim profit margins, the tariff hike translates into increased operating costs, reduced competitiveness, and, in some cases, closures. Furthermore, multinational corporations evaluating investment opportunities in Nigeria may be deterred by the uncertainty surrounding energy costs.

Addressing the challenges posed by the electricity tariff hike requires a multifaceted approach. To begin with, there is a need for greater transparency and accountability within the electricity sector. Nigerians deserve clarity on how tariff decisions are made and assurances that increased revenues will translate into tangible improvements in service delivery.

On the other hand, if properly managed, tariff hikes could increase revenue generation for electricity providers, allowing them to invest in infrastructure upgrades, maintenance, and expansion of capacity. This investment is crucial for improving the reliability and adequacy of power supply. Higher tariffs could also incentivize investment in renewable energy sources such as solar and wind power. This diversification of the energy mix can enhance resilience, reduce dependence on fossil fuels and contribute to a more robust, sustainable and reliable electricity market.

Again, with increased revenue, electricity providers may invest in improving operational efficiency, reducing technical and commercial losses in the distribution network, and optimizing energy production and distribution processes. These efficiency improvements can lead to a more reliable and cost-effective power supply.

While tariff hikes can generate revenue for electricity providers, they must be implemented gradually and accompanied by measures to protect vulnerable citizens. Subsidies, targeted assistance programs, and initiatives to promote energy efficiency will help mitigate the impact of tariff increases on low-income households and small businesses. Additionally, Nigeria must accelerate its transition to renewable energy sources. By harnessing its abundant solar, wind, and hydro resources, the country can diversify its energy mix, reduce dependency on costly fossil fuels, and lower electricity costs in the long run. Initiatives such as the Solar Power Naija program, which aims to provide five million solar connections to off-grid communities, are steps in the right direction but require scaling up to have a significant impact. Empowering consumers with knowledge and tools to manage their electricity consumption is also key. Through energy efficiency measures, such as the adoption of energy-efficient appliances and practices, households and businesses can reduce their electricity bills without compromising comfort or productivity.

Consumers are also not left out, if the battle must be won. All hands must be on deck to ensure that everyone plays their role effectively. For instance, local communities can establish community-based energy projects, such as solar farms or wind turbines, to generate their own power and reduce reliance on the national grid.

Residents can form cooperatives to collectively invest in and manage local energy resources, sharing the benefits of reduced costs and increased energy security. Also, communities can implement local initiatives to improve energy efficiency, such as retrofitting buildings with better insulation or installing energy-efficient lighting.

Additionally, by organizing workshops and campaigns, communities can educate members about the benefits of renewable energy and energy conservation practices. Furthermore, community members can engage in dialogue with policymakers to ensure that their needs and preferences are considered in energy policies. Advances in digital technology can enable communities to set up platforms for the exchange of electricity, optimizing local energy use and reducing waste.

By actively participating in these initiatives, local communities not only contribute to the affordability and sustainability of energy but also foster social cohesion and economic resilience. It is a collaborative effort that empowers people and aligns with broader environmental and economic goals.

The latest electricity tariff hike in Nigeria has highlighted the urgent need for comprehensive reforms in the country’s energy sector. While the immediate impact may be challenging, pre-emptive measures can mitigate its long-term effects. By promoting transparency, embracing renewable energy and empowering consumers, Nigeria can chart a path towards a more sustainable and equitable energy future. Through combined efforts from policymakers, businesses, and citizens alike, Nigeria can transform its electricity sector into a catalyst for economic growth and social development because It is time to harness the power of innovation and collaboration to illuminate a brighter future for all Nigerians.