• Tariff increases to continue till Discos cover costs, says NERC

Analysts, the Organised Private Sector (OPS), labour and the Peoples Democratic Party (PDP) yesterday decried a review, by the Federal Government, in electricity tariffs, especially amidst the current economic challenges occasioned by the COVID-19 pandemic.

They faulted the timing of the tariff adjustment, considering the economic hardship and recession which have eroded the purchasing power of Nigerians.

The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), the Lagos Chamber of Commerce and Industry (LCCI), the Nigeria Labour Congress (NLC), Trade Union Congress (TUC), a former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu; Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng and a former Commissioner for Finance, Prof. Uche Uwaleke, in separate interviews, expressed reservations about the new electricity pricing regime.

Earlier yesterday, the federal government, through the Nigerian Electricity Regulatory Commission (NERC), had, again, increased electricity tariff.

However, the government stated that prices paid by households and business premises with less than 12 hours of power supply remain frozen and will be subsidised.

The NERC, in an order copied all the Distribution Companies (Discos), said it hiked the tariffs considering the changes in inflation rate, foreign exchange, generation capacity, gas prices, among others, since the last review.
The latest increase comes about four months after the last one, which was unsuccessfully opposed by the organised labour, prompting a temporary suspension. But the then pricing regime finally took off after negotiations that did not yield much results.

In a revised Multi Year Tariff Order (MYTO) signed by the new Chairman of NERC, Mr. Sanusi Garba and Commissioner, Legal, Licensing and Compliance, Dafe Akpeneye, on December 31, 2020, the memo indicated that the new tariff increase took effect from January 1, 2021.

Although NERC has not made the orders public at the time of going to press, citing the need to first allow the receiving Discos acknowledge receipt of the official communication, the one sent to Ibadan Electric Distribution Company (IBEDC) showed that for band A (Non-Maximum Demand), tariff is rising from N59.15 in December 2020 to N62.33 in January through June 2021.

This will further increase to N69.18 between July and December this year, N73.11 by 2022 and N74.22 in 2023.
For MD1, still in band A, it increased from N58.25 from December last year to N61.33 from January to June and will be N68.13 from July to December this year.

As for MD2, the increase was from N56.78 to N59.70 in the first six months and N61.86 thereafter till year end. Band A is expected to receive 20 hours of power supply or more per day.

Band B, (minimum of 16 hours per day), increased from N55.46, N54.52 and N53.62 to N58.39, N57.33 and N56.33 respectively from now till June.

The three levels in band C also rose from N46.71, N45.99 and N44.91 to N48.71, N47.99 and N46.91 respectively between now and June this year. This band is not expected to get less than 12 hours per day.

However, in a statement clarifying the order marked NERC/225/2020, NERC explained that the commission had not approved a 50 per cent increase in electricity tariffs, but had only made an approval based on minor changes in the variables that go into the final charges paid by consumers.

The commission states unequivocally that no approval has been granted for a 50 per cent tariff increase in the tariffs order for electricity distribution companies which took effect on January 1, 2021.

On the contrary, the tariff for customers on service bands D & E (customers being served less than an average of 12 hours of supply per day over a period of one month) remains frozen and subsidised in line with the policy direction of the federal government.

In compliance with the provisions of the Electric Power Sector Reform Act (EPRSA) on the nation’s tariff methodology for biannual minor review, the rates for service bands A, B, C, D and E have been adjusted by NGN2.00 to NGN4.00 per kW/hr to reflect the partial impact of inflation and movement in foreign exchange rates,

it stated.

It noted that any customer that has been impacted by any rate increases beyond the above provision of the tariff order should report to the commission through its approved lines of communication with the public.

On the order, one of which was addressed to the Ibadan Disco, NERC stated that the factors taken into consideration were:

14.9 per cent inflation rate rise in November 2020, foreign exchange of N379.4/$1 as of December 29, 2020, available generation capacity, US inflation rate of 1.22 per cent and the Capital Expenditure (CAPEX) of the power firms.

The order also covers rate of increases expected to be paid by Nigerians between now and 2024, with a unit costing as much as N74 by then.

In the latest order copied the IBEDC, NERC said:

This order supersedes order /NERC/202B/2020 and shall take effect from 1st January 2021 and shall cease to have effect on the issuance of a new MYTO or an extraordinary tariff review order by NERC.

The commission noted that the order, among other objectives, aims to transit to Cost Reflective Tariffs (CRT) and introduction of service-based tariff regime with a view to improving customer service experience as well as ensuring financial sustainability of the electricity industry.

Accordingly, this order is issued to reflect the impact of changes in the minor review variable as indicated in section 7 of this order and used relevant projections based on best available information in the determination of CRT and relevant tariff shortfalls for the year 2021,

it noted.

According to NERC, the revised tariff reflects the impact of changes in the projected minor review variables from January to December 2021.

It also explained that part of the objectives was to steer the market to gradual cost-reflective tariffs and activation of market contracts in line with the requirements of the transitional electricity market.

On how it arrived at the new rates, NERC stated:

The actual average monthly inflation rate of 13 per cent for the period January to November 2020 was used for review of the year 2020 tariffs, while the November 2020 inflation rate of 14.9per cent as obtained from the Nigeria Bureau of Statistics (NBS) was adopted to project Nigeria inflation rates for 2021.

In line with the MYTO methodology, the CBN official exchange rate plus a premium of 1 per cent was used for the retroactive review of the year 2020. The benchmark gas price of $2.50/mmbtu, gas transportation cost of $0.80 mmbtu and gas prices outside the regulated rates for Generation Companies (Gencos) with effective gas sales agreement were maintained,

NERC added.

For instance, in the analysis, while lifeline remains frozen at N4 from now till 2024, Non-MD will pay N62.33 from January to June, N69.18 from July to December, N73.11 in 2022, N74.22 in 2023 and N74.12 in 2024.

Also, the commission stated that the Discos shall be liable for service improvements in accordance with the commitments under the universal service obligations for providing electricity supply to customers.

Labour, OPS, PDP, Analysts Decry New Tariffs

The new electricity pricing regime drew outrage and caution from the organised labour, PDP, the OPS and analysts.
NLC President, Dr. Ayuba Wabba, condemned the hike, describing it deceitful.
He described the federal government’s action as improper since the joint technical committee set up to review the processes involved in tariff fixing is still at work.

He said while other countries are giving palliatives to cushion the effect of the economic hardship on citizens occasioned by the COVID-19 pandemic, the Nigerian government is inflicting more hardship on its citizens.
On its part, the Trade Union Congress ((TUC) described the hike as another betrayal of trust.

In a statement by it President, Quadiri Olaleye, the union said that it was disappointed by the hike in electricity tariff.

It added that the tariff increase will increase the hardship of Nigerians.

TUC said:

Sometimes we wonder why this government espouses unfriendly policies that are capable of crippling the economy. There are many companies that have either closed shops or relocated to neighbouring countries because they cannot afford to pay the last tariff hike yet this government has done another one. Does it mean there is no other way this government can creatively generate revenue? It has become obvious that the outrages from the organised labour and the masses and the series of negotiations we had with government were just cosmetic and hypocritical.

There is so much deceit and laziness in the system. There is hardly any promise made that they have followed through.

The TUC urged the federal government to revert to the old tariff or be prepared to face the consequences.
Also, a former Director General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, said the new pricing regime would lead to more hardship, particularly for Micro Small and Medium Enterprises (MSMEs).

He said:

It is unfortunate that electricity tariff had to be increased at this critical and difficult time. In my opinion, this is a very wrong timing of implementation of such increase.

The country is currently in recession and experiencing attendant hardship by the citizenry. Recession is not a period to increase taxes, levies, tariffs and bills. This is because the ultimate effect will adversely affect households and consumers.

Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, told Flavision that the hike would among other things, affect the general cost of goods and services and compound the pre-existing inflationary pressures.

With COVID-19 and partial lockdown still in place, it will certainly be a tough business environment for SMEs,

he stated.
On his part, a former Imo State Commissioner for Finance, Prof. Uche Uwaleke, described as ill-timed the latest increase in electricity tariff by NERC.

Uwaleke explained that much as having in place a cost-reflective tariff is in the long-term interest of the power sector due to its potential to attract investors, implementing such a reform now will be counter-productive.

The Director General of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Ambassador Ayo Olukanni, also told THISDAY that in the current reality of COVID-19 whose telling impact on the Nigerian economy is currently manifesting as economic recession,

a continuous increase in the cost of production as a result of these periodical increases will impede the growth of the real sector.

Olukanni said business concerns would attempt to pass on some of these costs to their consumers by increasing their prices, which would depress demand in an unending the vicious-cycle.

He said:

Our counsel to the government remains the implementation of policies (even if it is in the short term) that increase the productive capacity of the real sector, as well as the disposable income of the general populace, as this is the time-tested approach to exit a recession.

Also, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, called for a strategic approach to electricity pricing in order to avoid pushback from the consumers.

Yusuf stated that there was a review of the tariff just two months ago before the latest price adjustment this year.
He said:

The commercial arguments may be strong, but there is a social context to be reckoned with, especially given the kind of product in question.

The economy is currently in a recession, purchasing power has been significantly eroded across all income classes, the poverty situation has been worsening and there is spiraling inflation. There are fresh concerns about a resurgence of the COVID-19 pandemic.

These contexts should have a moderating effect on price movement at this time, especially for a product of high social significance. It is important to take these factors into account in order not to put the entire reform process at risk.

In its reaction, the Peoples Democratic Party (PDP) described the hike in electricity tariff as insensitive and anti-people, adding that it will worsen the economic hardship being faced by Nigerians.

The party, in a statement by its National Publicity Secretary, Kola Ologbondiyan, said the reasons adduced by NERC is not enough to warrant such an increase in electricity tariff, especially at the time Nigerians are looking up to government for economic recovery programmes and packages.

The PDP urged the APC and its government to note that such electricity tariff hike, at this critical time, will bear more pressure on homes and businesses, impact negatively on the national productivity and make life more unbearable, particularly at this period of economic recession.

What our nation needs at this point are positive policies that will encourage Nigerians in their productive endeavours and cushion the hardship they face on daily basis instead of wicked policies that will only worsen their situation,

it added.

Justin Nwosu

Justin Nwosu is the founder and publisher of Flavision. His core interest is in writing unbiased news about Nigeria in particular and Africa in general. He’s a strong adherent of investigative journalism, with a bent on exposing corruption, abuse of power and societal ills.