Nigerians to pay more for electricity

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…as NERC approves increase in tariff

…Current Static tariffs amid escalating cost simply cannot work – LCCI

By Kayode Tokede (Lagos) & Yusuf Abdullahi, Abuja.

A new tariff has been approved by the Nigerian Electricity Regulatory Commission (NERC) for the electricity distribution companies (DisCos) in the country. The NERC made this known on Wednesday, August 21, in a series of publications tagged ‘2016-2018 minor review of the 2015 multi-year tariff order’ (MYTO) for each DisCo. The documents indicate that the new tariff became effective from Monday, July 1, 2019.

NERC said: “The objectives of this order are to reflect the impact of changes in the Minor Review variables for the period 2016 – 2018 to determine the cost-reflective tariffs for the relevant years; and to ascertain revenue shortfalls in view of the differential between such tariffs and allowed tariffs in the Nigerian Electricity Supply Industry (“NESI”).

“Determine and recognise the historical (2015 – 2018) tariff deficits pursuant to the objective of resolving the impairment of the financial records of DisCos arising as a consequence of the deficits.

“This order has taken into consideration the actual changes in relevant macroeconomic variables and available generation capacity in updating the operating MYTO 2015 Tariff Order for the period January 1, 2016, to December 31, 2018, in line with the provisions of the MYTO Methodology (Amended). Projections were made for macroeconomic variables for the year 2019 and beyond based on best available information.

“The commission shall make necessary adjustments to reflect actual values at the time of the next minor review that will take effect on 1 January 2020.” The DisCos had earlier complained that its major challenge in the sector was lack of cost-reflective tariff, which they said had also prevented them from investing in their networks. The DisCos in 2018 claimed they were incurring huge losses as they were buying electricity at N80.88 and selling to consumers at N31.50, recording a shortfall of N49.38 per kilowatt.

The tariff increase for each DisCo differs, going by figures in the documents released by the commission.

Breakdown of the new tariff For Abuja DisCo’s minor review assumptions 2015-2021, NERC stated that the DisCo’s end-user cost reflective tariff from 2017, 2018, 2019, 2020 and 2021 per KWh were N42.81, N46.44, N52.86, N46.02 and N44.29 respectively. The commission, however, stated that the end-user allowed tariff from 2017 to 2019 per kWh was N32.66 in each of the years, while those of 2020 and 2021 were put at N42.46 and N44.21.

The difference between what Abuja DisCo’s customers pay currently and what they will pay from next year, going by NERC’s figures, is an increase of N9.8/kWh.

For Eko DisCo, the commission said the end-user cost reflective tariff from 2017, 2018, 2019, 2020 and 2021 per kWh were N39.7, N41.8, N46.1, N39.8 and N39.2, respectively. For the end-user allowed tariff from 2017 to 2019 per kWh, it said this was N28.3 in each of the year, while those of 2020 and 2021 were put at N36.8 and N39.2.

The difference between what Eko Disco customers pay currently and what they will pay from next year is an increase of N8.5/kWh.

For Benin DisCo, the commission said the end-user cost reflective tariff from 2017, 2018, 2019, 2020 and 2021 per kWh were N51.37, N54.36, N59.07, N47.61 and N43.79.respectively.

It also stated that the end-user allowed tariff from 2017 to 2019 per kWh was N32.50 in each of the years, while those of 2020 and 2021 were put at N42.25 and N43.79.

The difference between what BEDC’s customers pay currently and what they will pay from next year is an increase of N9.75/kWh.

For Ibadan Disco, the end-user allowed tariffs for 2019, 2020 and 2021 per kWh are N30.6, N39.7 and N44.2, respectively. This implies that by next year, Ibadan DisCo customers will pay more; the difference is an increase of N9.1/kWh in their tariff.

For Ikeja DisCo, electricity consumers will have to pay additional N8.2/kWh from next year as the end-user allowed tariffs in the order from NERC put the tariffs for 2019, 2020 and 2021 per kWh at N27.3, N35.5 and N37.1 respectively.

Customers under Enugu DisCo will get a tariff increase of N10.6/kWh from 2020. This is because based on figures from the commission, the allowed end-user tariffs for Enugu Disco for 2019, 2020 and 2021 per kWh are N35.3, N45.9 and N41.6, respectively.

Customers under Jos DisCo will get a tariff increase of N10.1/kWh from 2020 as they will have to pay N43.9/kWh as against N33.8/kWh which they currently pay.

For Kano DisCo, electricity consumers will pay an increase of N14.6/kWh in the tariff they pay for electricity because NERC increased the end-user allowed tariffs from N30.1/kWh in 2019 to N44.7/kWh in 2020 and N41.8/kWh in 2021.

For Kaduna Disco, customers will be paying an increase of N9/kWh. The end-user allowed tariffs for 2019, 2020 and 2019 per kWh for Kaduna Disco, according to NERC, are N30.3, N39.3 and N41.7, respectively.

However, the Director-General, Lagos Chamber of Commerce and Industry (LCC), Mr. Muda Yusuf, has said the current model of static tariffs in the power sector in the face of escalating cost simply cannot work, stressing that tariff review is needed to grow the sector infrastructure.

Speaking on the background of new tariff has been approved by the Nigerian Electricity Regulatory Commission (NERC) for the electricity distribution companies (DisCos) in the country, he noted that Power sector has severe liquidity challenges.

According to him, “The reality is that private investors in the privatized power sector have severe liquidity challenges.  Practically all assumptions that informed the investment in the first place have broken down.

“These are assumptions with respect to tariffs, exchange rate, interest rate etc. It has thus become impossible to operate the key elements of the power value chain as viable commercial entities.

“This is the background to the apparent failure of the power sector privatisation.  The current model of static tariffs in the face of escalating cost simply cannot work.  If the sector has to remain with the private sector, tariff review is clearly inevitable.”

He, however, said the private investors do not do proper due diligence before taking over the power sector.

He explained that, “There were financial and technical capacity issues.  For the end users, if steady supply of power can be guaranteed, paying more for power is a sacrifice worth making.  It would still be cheaper than depending on diesel or petrol generators. Besides, it would be better for the environment

He said, the challenges in the factor would make it difficult to attract investors into the sector if the tariff issues are not fixed.

He explained that, “Truth is it would be difficult to attract investors into the sector if the tariff issues are not fixed.  Of course it would not be popular, but it is inevitable. The alternative is for the government to take it over and run it as a social service.

“But the question is where will the money come from.  However, it is imperative to ensure effective regulatory framework to protect electricity consumers.”

According to NERC, “The objectives of this order are to reflect the impact of changes in the Minor Review variables for the period 2016 – 2018 to determine the cost-reflective tariffs for the relevant years; and to ascertain revenue shortfalls in view of the differential between such tariffs and allowed tariffs in the Nigerian Electricity Supply Industry (NESI).

“Determine and recognise the historical (2015 – 2018) tariff deficits pursuant to the objective of resolving the impairment of the financial records of DisCos arising as a consequence of the deficits.

“This order has taken into consideration the actual changes in relevant macroeconomic variables and available generation capacity in updating the operating MYTO 2015 Tariff Order for the period January 1, 2016, to December 31, 2018, in line with the provisions of the MYTO Methodology (Amended). Projections were made for macroeconomic variables for the year 2019 and beyond based on best available information.

“The commission shall make necessary adjustments to reflect actual values at the time of the next minor review that will take effect on 1 January 2020.”

The DisCos had earlier complained that its major challenge in the sector was lack of cost-reflective tariff, which they said had also prevented them from investing in their networks. The DisCos in 2018 claimed they were incurring huge losses as they were buying electricity at N80.88 and selling to consumers at N31.50, recording a shortfall of N49.38 per kilowatt.

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