Why Nigerians Are Reluctant to Pay for Electricity


By Obinna Chima

Nigerians are not willing to pay estimated electricity bills by the power distributing companies (discos) because they do not trust the estimates.

This formed part of the findings by Renaissance Capital, in a report on their visit to Nigeria’s policy makers and development finance institutions in Abuja earlier this month.

According to the report, recovery rates by the discos would improve if a bigger percentage of consumers of electricity had pre-paid meters.

Presently, only 30 per cent of the country is metered.

“There is a need for greater investment to allow for a migration to pre-paid meters, which would in turn improve payment recovery rates,” RenCap stated.

The federal government’s N701 billon payment assurance guarantee for the Power Sector Recovery Programme (PRSP) guarantees the Nigerian Bulk Electricity Trading (NBET) company’s payment obligations to generating companies (GenCos) until December 2018. This ensures that the GenCos recover their investment and make some profit.

This has increased one GenCo’s payments recovery rate to 80 per cent, compared with between 25-30 per cent previously.

Today, GenCos can supply up to 7,000 MW and the transmission network has a capacity of 5,000 MW.

The World Bank recently approved a $486 million credit facility to Nigeria for electricity grid improvements.

“The investments under the Nigeria Electricity Transmission Project will increase the power transfer capacity of the transmission network and enable distribution companies to supply consumers with additional power,” the World Bank explained.

Nigeria’s dilapidated power sector is often criticised by economists for holding back the country’s economic growth. Businesses and households are subject to frequent blackouts, and many depend on their own generators that are expensive to run.

A recent report had pointed out that ineffective metering was a major problem to the success of power sector reforms in Nigeria, a report has stated.

The report by Lagos-based CSL Stockbrokers Limited had also noted that some consumers avoid paying for power consumed through meter bypass, while others are made to pay for what they haven’t consumed through

estimated billing by the discos.

It had cited a new draft meter regulation proposed by the Nigerian Electricity Regulatory Commission (NERC), which stated that electricity customers can now acquire meters under a 15-year lease facility from the discos guaranteed by third party meter providers.

It recalled that NERC had proposed a business model for the licensing of Meter Services Providers (MSP) who would provide for the financing, procurement, installation, maintenance and replacement of electronic

prepaid meters for end-users of electricity. According to the document, customers would make payments to MSPs through the collection account of the discos or through the vending platform for all meters supplied by the providers.

Continuing, in their findings, RenCap also noted that monetary easing may be delayed if inflation proves to be sticky. This stickiness was partly attributable to businesses still trying to recover their losses.

The Central Bank of Nigeria (CBN) plans to start cutting the policy interest rate once year-on-year inflation falls to the low double-digits, versus 15.1 per cent in January, they revealed.

“We estimate inflation will fall to 12-13 per cent in the second quarter of 2018, which may mean rates cuts begin in first half of 2018. However, there are significant upside risks to our forecast including: fuel shortages (which were worse in Abuja than in Lagos, judging by the length of the queues), which explain an average petrol price of N191/litre in January versus the government’s price cap of N145/litre; and food supply constraints from neighbouring countries.

“However, a stable forex rate is positive for inflation. Notably, the IMF and the CBN do not think the naira is overvalued, which is in line with this analyst’s view.

“That said, the CBN does not think the naira is as cheap as we do; it thinks fair value is close to N360/$1, vs our estimate of N320/$1 from this analyst’s real effective exchange rate (REER) model.

“The IMF expects no further unification of forex rates in the short

term.  Growth to strengthen in short term, plateau over medium term,” the report added.

The federal government’s 2018 forecast (as per the proposed 2018 budget), is 3.5 per cent. But last month, the investment bank stated that it revised up its forecast for Nigeria to 2.9 per cent (from 2%), owing to accommodative policy, higher oil production and a recovering consumer.