NERC Greenlights Tariff Hikes for DisCos Amid Soaring Electricity Subsidy Costs, Reaching N1.6 Trillion for Consumers

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Amidst widespread speculation in the recent months within the economic landscape, the Nigerian Electricity Regulatory Commission (NERC) has officially sanctioned the proposal to increase tariffs for the 11 Electricity Distribution Companies (DisCos) in the West African nation.

Following the regulatory green light for tariff adjustments, the DisCos are poised to proceed with the implementation of elevated tariffs, impacting electricity consumers across the 36 states of the Federation.

Sanusi Garba, the Chairman of NERC, disclosed these developments during a press conference held after the Federal Executive Council (FEC) meeting on Wednesday, January 17, 2024, in Abuja, FCT. Garba confirmed the Commission’s endorsement of an upward revision of electricity tariffs for consumers.

Reports indicate that the Nigerian Government is slated to allocate up to N1.6 trillion to subsidize electricity in the year 2024.

Earlier in June 2023, the DisCos had communicated to their customers, signaling an impending increase in electricity tariffs effective from July 1 of the same year. The power operators justified the tariff hikes by attributing them to the fluctuations in the value of the Naira. They emphasized that the primary goal of the tariff adjustments was to ensure the financial viability and sustainability of the electricity industry amid currency challenges.

With the introduction of a new electricity tariff plan for consumers, the industry’s Multi-Year Tariff Order (MYTO) specified that the order would become effective from January 1 of the current year and cease to be in force upon the issuance of a new tariff review order by the Commission.

Garba elucidated that the Order delineates the appropriate tariffs consumers are obligated to pay for investors to recoup their operating costs within the Nigerian power sector. Additionally, he emphasized that the Order aligns with the Federal Government’s policy, ensuring that, despite the cost-of-living challenges, consumers will not be subjected to higher rates than those in place prior to the adjustments.

“The order seeks that prices charged by DisCos are fair to customers and are sufficient to allow DisCos to fully recover the efficient cost of operation, including a reasonable return on the capital invested in the business in accordance with section 116 of the Electricity Act 2023,” he noted.

According to the NETC Chairman, the tariff order encompasses the essential tariffs that the Electricity Distribution Companies (DisCos) should be levying to sustain their operations. He emphasized that the specified rates are explicitly outlined, underscoring their clarity. The Chairman highlighted the significance of these tariffs in ensuring the continued viability of the DisCos’ business operations.

 “Some N110/kWh, N120/kWh, N130kWh and so on, because DisCos as distinct legal entities have different operating parameters, different efficiency levels and so on.

“So on that basis, they also have different tariffs. So for the first time, we have published what they should charge.

“We have also published the amount they are allowed to charge based on government policy”, Garba explained.

 “Because the government has decided for now, arising from the cost of living crisis, in the meantime, to continue subsidising electricity,” the Chairman said.

 “So, in the new order just published by the commission, you will discover that tariff is not going up but you will see what the DisCos should have been charging and you will also see the amount of subsidy that the government will be providing to cover the gap between what they will charge and what they are allowed to charge.

“With the tariff allowed, the Federal Government will be expected to pay as high as N1.6 trillion to subsidise electricity in the year 2024 at a monthly average of N120 billion,” He noted.

“Besides, the Tariff Order as well showed that the government will pay N233.26 billion (or N19.44 billion monthly) as subsidies for consumers under the Abuja Electricity Distribution Company, AEDC, franchise in 2024.

The commission stated that AEDC had applied for N151.07 as cost reflective tariff per kilowatt hour but it approved N120.88/kWh. With the tariff freeze, consumers would be charged only N63.24/kWh while the government would pay N58.12/kWh.

For electricity consumers served by Ikeja Electric (IKEDC), the government will pay N238.20 billion (or 19.85 billion monthly) as a subsidy in 2024. The commission said IKEDC had applied for N128.18/kWh as a cost-reflective tariff, and it approved N112.10/kWh. With the tariff freeze, consumers will be charged only N56.60/kWh while the government will pay N55.50/kWh as a subsidy.

Also, for Enugu Electricity Distribution plc (EEDC) the government will pay N128.92 billion pay (or N10.74 billion monthly) as subsidies in 2024. The commission said EEDC had applied for N155/kWh as a cost-reflective tariff, but it approved N128/kWh. With the tariff freeze, consumers will be charged N59/kWh while the government will pay N69.40/kWh as subsidy.

For Benin Electricity Distribution Plc (BEDC), the commission said consumers will enjoy a cumulative subsidy of N140.85 billion (or N11.74 billion monthly).

The utility had applied for an astronomical N277.70/kWh as cost reflective but got the approval of N126/kWh from the regulator. This, it said, means that consumers will pay N60.10/kWh while the government will pay N65.90/kWh as subsidy”.

Addressing the issue of metering consumers, Garba highlighted that the Commission has recognized the financial challenges faced by the Distribution Companies (DisCos) in implementing widespread metering for their customers. This acknowledgment underscores the difficulties the DisCos are encountering in securing the necessary funds to carry out comprehensive metering initiatives across their customer base.

 “On metering, we have clearly identified that the challenge and matrix is financing. It’s not rocket science.

“So, the rate of metering has been so far, adversely impacted by the inability of DisCos to raise capital from the banks,” The NERC Chairman said.

 “Another challenge has been that metres are part of the assets of a distribution company with a lifetime of at least 10 years, so even more than 10 years.

“So, if you are going to match the revenues for the life of the asset, also the bank may not provide long-term finances.

“So in recognition of that, we now decided that from the market revenues, we set aside a fixed amount that now is ring-fenced and dedicated for the provision of metering,” He stated.

“We are not saying that the money that is gotten from the market on a monthly basis, is the money you are going to take away to buy metres, it is to show potential lenders that there is a pathway to paying whatever loan the DisCos are going to get,” Garba further stated

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