NISO: Cost-reflective Electricity Tariff Must be Gradual, Linked to Service Improvement

Advocates targeted, not blanket subsidies in power sector 

Power correspondents seek balanced pricing

Emmanuel Addeh in Abuja 

The Nigerian Independent System Operator (NISO), the government organisation that manages the national electricity grid, has maintained that the planned cost-reflective tariff pricing regime must be gradual and should be linked to service improvement by the operators.

In a keynote address at the 5th Annual Power Correspondents Association of Nigeria (PCAN) Conference in Abuja, the Managing Director and Chief Executive of NISO, Bello Mohammed, the grid manager also advocated targeted subsidies, rather than the current almost blanket model being operated.

The programme was themed: “Cost Reflective Tariff vs Energy Poverty: Finding a Pricing Balance in the Nigerian Power Sector”, and was attended by key stakeholders in the Nigerian Electricity Supply Industry (NESI).

“Transitioning to a fully cost-reflective tariff should not be abrupt. It must be gradual, deliberate, and linked to visible service improvement. Consumers are more willing to pay when they experience reliability and fairness. Service-based tariffs, coupled with transparent communication and performance-linked adjustments, will foster this trust.

“Regulatory predictability is also crucial. Investors, operators, and consumers need certainty. A stable, transparent, and consultative tariff review process by the Nigerian Electricity Regulatory Commission (NERC) builds confidence and reduces the temptation for political interference,” Mohammed emphasised.

While the tariff framework provides a transparent methodology based on key variables such as exchange rate, inflation, and gas price, political and social considerations, he pointed out, have often led to tariffs that remain below actual cost levels.

He pointed out that the result is a system that struggles to attract investment, sustain operations, and deliver the level of service that Nigerians rightly expect.

But beyond the economics, he said, lies a deeper issue of the enduring challenge of energy poverty, where millions of households in Nigeria still lack access to reliable electricity, explaining that energy poverty goes beyond lack of connection, but the inability to afford sufficient power for daily life and productive enterprise. 

“We cannot ignore the fact that rising inflation, unemployment, and declining purchasing power have eroded the capacity of many Nigerians to pay higher tariffs, even when supply improves. And yet, without cost-reflective tariffs, our utilities cannot recover costs, investors cannot commit capital, and our electricity infrastructure will continue to deteriorate.

“ The real question, therefore, is not whether we should have cost-reflective tariffs, but how to achieve them in a way that preserves affordability and protects the most vulnerable among us.

“Finding that balance requires thoughtful, multidimensional strategies. First, we must embrace targeted subsidy mechanisms that reach the truly vulnerable, rather than blanket subsidies that distort market signals and sustain inefficiency. Properly designed lifeline tariffs and data-driven welfare-linked rebates can provide real protection for low-income consumers while allowing the market to function efficiently.

“Second, we must confront inefficiency head-on. Reducing technical, commercial, and collection losses is one of the fastest ways to relieve pressure on tariffs. Every percentage point of loss recovered translates directly to lower costs for consumers. This requires renewed focus on metering, automation, data accuracy, and operational discipline across all segments of the industry.

“Third, transparency must be non-negotiable. The Nigerian Independent System Operator, in its current structure, plays a central role in ensuring that energy is dispatched efficiently, market settlements are transparent, and imbalances are minimised. By improving transparency and operational efficiency, we strengthen investor confidence and ensure that tariff adjustments are grounded on verifiable performance data,” he pointed out.

According to him, as the new Electricity Act empowers states to establish subnational electricity markets, Nigeria must embrace embedded and decentralised energy solutions, encouraging micro-grids, off-grid systems, and embedded generation, which can reduce transmission losses, improve reliability, and lower the average cost of supply for consumers.

From the perspective of NISO, he stated that  the commitment is clear, explaining that as the entity responsible for system operation, market coordination, and system planning, it was enhancing transparency, efficiency, and coordination in ways that directly impact market sustainability. 

“We are deploying digital platforms that improve visibility of energy flow, generation availability, and settlements. We are upgrading our grid management tools through SCADA and Energy Management Systems to strengthen reliability. And as the electricity landscape evolves toward decentralisation, NISO is ensuring that state and regional markets remain interoperable, fair, and aligned with national grid objectives,” he added.

Also speaking, National President, Association for Public Policy Analysis and Executive Director, Electricity Consumer Protection Advocacy Centre, Chief Princewill Okorie, said that some of the issues to be considered before cost reflective pricing include: the cost of transformers, poles, cables, feeder pillars, meters etc. which enhance distribution of electricity to end users, which should be considered as a major component of cost incurred to supply electricity. 

“Are these costs taken care of by the Generation Companies (Gencos), Distribution Companies (Discos), consumers or government? It is expected that Discos who are investors should bear the cost of electricity infrastructures and maintenance. Hence, it should be part of the cost to be considered in fixing cost reflective tariff,” he stressed.

Earlier, the PCAN Chairman, Obas Esiedesa, argued that more than a decade after the privatisation of the power sector, the industry is still weighed down by an estimated N6 trillion debt owed by the federal government to power generation companies.

Besides, he said that there’s a massive liquidity gap across the value chain, plus gas supply shortages, aging and weak transmission infrastructure, and rising foreign exchange costs that threaten investments and operations.

“As journalists who follow this sector closely, we at PCAN understand that electricity pricing is more than a technical or economic issue — it is at the heart of Nigeria’s development, productivity, and quality of life. That is why this conference continues to serve as a neutral and solutions-driven platform for engagement among all stakeholders,” he stated.