FG to Underwrite N544.8bn Electricity Tariffs’ Shortfall

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•Consumers to pay more for power from April

Chineme Okafor in Abuja

The federal government will bear a financial burden of N544.894 billion being the cumulative shortfall in electricity tariffs of the 11 electricity distribution companies in Nigeria, the Nigerian Electricity Regulatory Commission (NERC) has said.

The regulatory agency in the December 2019 minor review of Multi Year Tariff Order (MYTO) 2015 and minimum remittance order for 2020 posted on its website, explained that from its statutory review of the electricity tariffs being paid by consumers, the tariff of each of the Discos will increase in April.

According to NERC, the order was issued to reflect the impact of changes in variable it uses to determine cost-reflective tariffs; relevant tariff and market shortfalls for 2019 and 2020.
It said the government would, however, bear a financial burden of N544.894 billion revenue shortfalls of the Discos in 2020.

It added that the new order equally determined the minimum remittances payable by the Discos in line with their obligations to the power market and for which their tariffs were allowed.
Based on its calculation, the NERC stated that in 2020, the revenue shortfalls of the Ikeja, Benin, Enugu, Eko, Ibadan, Jos and Kano Discos would be N48.479 billion, each.

The Abuja Disco would have a revenue shortfall of N57.270 billion; Kaduna would have N41.677 billion; Port Harcourt would be N38.248 billion while Yola Disco would have a shortfall of N68.346 billion in the year.
“The federal government’s updated Power Sector Recovery Programme does not envisage an immediate increase in end-user tariffs until April 1, 2020, and a transition to full cost reflectivity by end of 2021.

“In the interim, the federal government has committed to funding the revenue gap arising from the difference between cost-reflective tariffs determined by the commission and the actual end-user tariffs payable by customers,” said the NERC in the order.

It noted that all the Discos would be expected to settle their market invoices in full as adjusted and netted off by applicable their tariff shortfall, adding that “all Federal Government of Nigeria intervention from the financing plan of the PSRP (Power Sector Recovery Programme) for funding tariff shortfall shall be applied through NBET and the market operator to ensure 100 per cent settlement of invoices issued by market participants.”

According to it, “Effectively, this order places a freeze on the tariffs of TCN (Transmission Company of Nigeria) and administrative charges until April 2020 at the rates applied in generating MO (Market Operator) invoices for the period of January to October 2019.”

Justifying its decision, the regulatory commission said the order was made to “reflect the impact of changes in the minor review variables for the period 2019 -2020 for the determination of cost reflective tariffs; and to ascertain revenue shortfalls in view of the differential between such tariffs and allowed tariffs in the Nigerian Electricity Supply Industry (NESI).”

It also stated that this was to “develop and implement a framework to manage revenue shortfalls for the year 2020 through a minimum market remittance requirement to account for differences between cost reflective tariffs and allowed tariffs in the settlement of invoices issued by the Nigerian Bulk Electricity Trading Plc (NBET) and the Market Operator (MO).”

It said it would hold the Discos responsible for any failure to remit their approved monthly minimum revenue to the market and that each of the Discos would have to provide an adequate, unconditional, unencumbered and irrevocable standby letters of credit covering three months invoices.