The New Electricity Tariff Increase

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Emmanuel Addeh examines the recent hike in electricity tariffs and the various debates surrounding it

It was long in coming, but any committed observer of the Nigerian electricity supply industry knew it was only a matter of time before something would give in the country’s search for reliable power supply.

There was no doubt that the sector needed a tweaking, if not a complete overhaul.  But the argument was which one should come first? Improved service by the operators in the value chain or increased tariffs to be paid by power consumers.

After years of going back and forth, the decision makers, including the federal government, the Nigerian Electricity Regulatory Commission (NERC) and indeed the Distribution Companies (Discos) on Tuesday finally hiked the unit price of electricity for a section of the country’s customers.

With a history of tariff postponements too numerous to detail because of its sensitive nature, being political, economic and social decision, the clamour for a cost-reflective tariff regime has been long-drawn.

A History of Vacillations

Earlier in the year, NERC asked operators in the power sector, including electricity generation and distribution companies, to submit performance improvement plans (PIP) committing them to a higher quality of service.

The agency said the existing tariff regime would be retained, while the performance improvement plan would form the basis for future tariff review.

Although the regulator did not say when the new electricity tariff would be executed, it was apparently in preparation for last week’s increase.

Indeed,  as part of the announcements and reversals, on December 31, 2019, NERC disclosed its plans to immediately review electricity tariffs in the country from January 1.

The order, titled “December 2019 MYTO Minor Review Order” for the 11 electricity distribution companies (DISCos), was jointly signed by the Chairman of the Commission, Prof. James Momoh, and the Commissioner for Legal, License & Compliance, Dr. Dafe Akpeneye.

But, the commission sometime later, said  the new tariff regime would not take effect until April 1, 2020 to allow it sufficient time to consult all the interest groups following misgivings by many Nigerians.

By the time April 1, 2020 arrived, the coronavirus pandemic had happened, causing all kinds of shutdowns and lockdowns, leaving behind all kinds of uncertainties.

It was again postponed till July 1, which was another failed attempt at reviewing the tariffs  after a meeting between the leadership of the National Assembly, NERC and Discos.

The lawmakers  claimed that while the tariff increase was necessary, the timing was bad as Nigerians were still reeling from the negative impact of the COVID-19 pandemic.

At the time, Senate President, Ahmed Lawan, promised to meet with the president to thrash out the matter, during which it was agreed that the review  should be deferred to the first quarter of next year.

Aside Lawan, who made the proposal for the postponement to the first quarter as the new take-off of the tariffs, Speaker, House of Representatives, Hon. Femi Gbajabiamila had also said that though well-intended, the timing was wrong.

If it took off at the time like it just did, it would mean that the federal government would no longer pay subsidy on electricity as it did with the liberalisation of the prices of petroleum products.

Before the hike, the tariff represented about 60 per cent of the actual cost-reflective tariff with the government making up for the shortfalls through subsidies to generation companies (Gencos) and gas suppliers.

But the  Discos have always argued that most investors will not come into a market that is not cost-reflective and beleaguered by uncertainty.

Taking the Bull by the Horns

However, with the mounting pressure on government revenues and continuous push by international financial bodies  like the World Bank and the International Monetary Fund (IMF) for Nigeria to end its subsidy regimes on all sectors, President Muhammadu Buhari, finally caved in and approved the review.

Before the increase, THISDAY exclusively reported that effecting the new tariff. which formally commenced on September 1, 2020, was one of the preconditions given by the World Bank for a $1.5 billion loan for Nigeria.

The president eventually signed off on the new planned electricity prices , which, it was learnt, will be reviewed every quarter.

Of the $1.5billion World Bank loan to be approved for Nigeria, $750million had been earmarked for the power sector and is one of the preconditions for approval of the loan, plus the removal of fuel subsidy which has already been achieved and unification of exchange rate by  the Central Bank of Nigeria (CBN).

Following the report of the planned increase, in a statement that ended up confusing Nigerians rather than clarifying issues, NERC said  increases would not be arbitrary and urged the public to disregard the report.

Hours later, NERC did not only confirm  the THISDAY exclusive report , it also laid out a plan for the increase which it clearly stated would be a service-based tariff (SBT) regime , but noted that the “poor” would not be affected by the expected increase.

NERC insisted that there would never be a good time for the review, stating that it will ensure that Discos improve on the quality of service as well as a 10-day deadline to install meters for power consumers who pay upfront.

“There will never be a good time to review the tariff. The interest here is to ensure that Nigerians are migrated to a threshold where there will be continuous improvement in the quality of service delivery.

“The proposed serviced-based tariff review which comes into effect by 1st September 2020 will only affect customers that live in areas where their Discos promise to provide them electricity for at least 12 hours.

“The SBT will operate a progressive regime-the customers that receive the highest quality of service (12-24 hours per day) will pay the highest tariff. Customers that receive under 12 hours of service per day will continue paying their current tariff, i.e no increase on September 1,” the chief regulator noted.

NERC insisted that SBT was designed to protect the poor, noting that only the wealthy customers in the areas that receive over 12 hours service will experience a tariff increase.

It noted that the service-based tariff  will relieve the government of paying electricity subsidy on the rich and allow it  to divert scarce resources to more pressing sectors, including education and healthcare.

“The tariff review is only expected to affect less than the richest 25 per cent of the population living in the most prosperous areas of the country. The richest 10 per cent of the population will cover as much as 50 per cent of tariff increase” it added.

It said that the service reflective regime is built around the incremental improvement in the quality of supply, stating that depending on the historical supply pattern, customers will observe increased hours of supply as the Discos migrate them to higher service bands . “Ultimately, customers will pay for service commensurate to the number of hours they receive,” NERC maintained.

NERC said with the improved tariff, incidences of customers contributing to buying poles, transformers and wires will reduce because Discos will  embrace their responsibilities in full and respond swiftly to complaints on damaged equipment.

“NERC has developed and communicated clear punitive mechanisms that will be used against Discos if they do not meet their obligations.

“In line with the Meter Asset Provider (MAP), 2018, regulation, there are two options for payment and obtaining meters, instalment payment which attracts a monthly meter service charge and upfront or one-off.

“ Customers who elect to be metered under the upfront payment are being metered within a maximum of 10 days. In other cases customers will be advised on when meters will be installed on their premises” the commission said.

NERC gave the assurance that the days of arbitrary billing will be a thing of the past as customers without meters will be billed as comparable to metered customers in the same area.

“NERC is responsible for meting out punishment to Discos if they do not meet the obligations to customers . The relevant punishment will be communicated through each Disco” it noted.

Regulator Explains Reasons for Hike

NERC stated that the said expected review was embarked upon, since customers did not object but demanded better quality of service during public hearings the commission said it held throughout the country.

It said that the commission took the decision after it reviewed the application filed by the Discos, taking into consideration the outcome of the public consultation held in February and March and thereafter approved new user tariffs from September.

“The order reflects the impact of changes in macroeconomic parameters and revenue requirements and a revised tariff design that aligns rates paid by customers with the quality of services as measured by average availability of power over a month period.

It noted that pursuant to the objective of incentivising a continuous improvement of service for all customers, there shall be no tariff reviews for customers experiencing an average power supply availability of less than 12 hours per day over a period of one month.

“Unmetered customers within service bands A,B and C thus benefiting from a supply availability in excess of an average of 12 hrs per days over a period of one month as affected by this tariff order shall be protected by the provision of order on capping of estimated bills in the NESI and federal government intervention on accelerated metering of all customers.

“The commission orders that you shall continue to maintain the lifeline tariff of N4.kW for all customers consuming less than 50kw per hour of energy per month as a safeguard for the less privileged members o the society” NERC added.

On the objectives of the order, NERC noted that it seeks to ensure that prices are fair to customers and sufficient to fully recover the efficient cost of operation, including a reasonable return on capital invested in business by the Discos.

The power sector regulator further maintained that the new guidelines will provide a path to a transition to full service-based cost reflective tariff by July 2021 and reclassify as well as disaggregate customer clusters on the basis of commitment to quality of service.

Upon evaluation, NERC said it considered  and approved five tariff service bands representing relative quality of service experience.

It told the power distributors that it arrived at the new rates after putting into consideration the country’s rate of inflation for July 2020 as obtained from National Bureau of Statistics (NBS) which was 12.82 per cent.

However, it disclosed that there will be a “tariff freeze” for customers in bands D,E, saying that customers on this band shall be charged tariffs obtainable prior to the take-off of the new rates pending when power improves.

“Following consultations on directions on tariff policy, the commission hereby approves a deferment of the applicable tariffs for customers in service band D and E ( less than 12 hours per day over a month)”

Excited Discos React to Tariff Review

For the 11 Discos, the news of the review was a big relief to a long-drawn battle to ensure that the chicken came before the egg, with the public insisting that service must improve first.

In explaining how it will work, Kaduna Electric Distribution Company (KEDC) in a statement by the Head, Corporate Communication, Abdulazeez Abdullahi,  said the new tariff regime was not a blanket increase.

“Under the service based tariff, feeders from where customers receive power supply to their neighbourhoods have been categorised into Bands A to E with the tariff increase in descending order”, he said.

“Customers under Band A who will enjoy a minimum of 20 hours of power supply are expected to pay N56 per kilowatt-hour while customers on Band B with minimum 16 hours supply shall pay N54 per kilowatt-hour’’, Abdullahi said.

KEDC added that customers on B and C who would be enjoying not less than 12 hours of supply shall pay N50 per kilowatt hour, adding that  increase for customers who fall under B, D, and E had been frozen until further directive from NERC.

As for Ikeja Electric, a residential customer on single phase receiving a minimum of 12 hours of supply will now pay N42.73 per kilowatt-hour, up from N21.30 per kWh.

On their part, Eko Electricity Distribution Company (EEDC), said a residential customer on single-phase receiving a minimum of 12 hours of supply will now pay N43.01 per kWh, up from N24 per kWh.

For the Abuja Electricity Distribution Company (AEDC), a residential customer on single-phase receiving between 12 to 16 hours of supply will now be charged N45.69 per kWh, up from N24.30 per kWh.

A residential customer receiving a minimum of 12 hours of supply from Ibadan Electricity Distribution Company (IEDC) will now pay N53.97 per kWh, up from N24.97 per kWh.

Protests Trail Increase

The increase has come with protests from almost every quarters, apart from probably the ruling party, the All Progressives Congress  (APC), and those connected to the current administration one way or the other.

The Nigeria Labour Congress (NLC) condemned the plan to increase the electricity, with its Pesident,Mr Ayuba Wabba, saying that such an action would only add more pains to Nigerians amidst the covid-19 pandemic.

According to him, “each hike in electricity tariff in Nigeria is trailed by huge leap in the hours of darkness, de-metering of more Nigerians, exponential rise in incidences of estimated billing, and increased burden on citizens for the procurement of equipment and facilities for public electricity supply amidst other devious methods by Discos to cheat, exploit and despoil poor Nigerians.”

Reacting to the development , former Vice President,  Abubakar Atiku, said he rejected the hike, saying it was “ill-timed and ill-advised”

“I reject the increased electricity tariffs. Coming out of the lockdown, Nigerians need a stimulus, not an impetuous disregard for the challenges they face. Many Nigerians have not earned an income for months, due to no fault of theirs. This increase is ill-timed and ill-advised”, he said.

The Peoples Democratic Party (PDP)  also rejected the fresh increase in the price of fuel to N151 per litre and electricity tariff to N66 per kwh under the All Progressives Congress (APC) led government.

The opposition party described the action as callous, cruel and punishing in a statement by its National Publicity Secretary, Kola Ologbondiyan, who demanded an immediate reversal of the prices to avert a national crisis.

“The party demands an immediate reversal of the prices to avert a national crisis, as the increase will result in upsurge in costs of goods and services and worsen the biting hardship being faced by Nigerians, who are already impoverished and overburdened  by APC-imposed high cost of living in the last five years” PDP said.

In taking a position, The Manufacturers Association of Nigeria (MAN) said the action will add to cost of production with the attendant implication for the consumers.

But if the tariff increase stays, as it is wont, since the federal government is not willing to budge, will it mean better and reliable supply of electricity to Nigerians? In the next few months Nigerians will decide whether the hike was ill-informed.