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The move by the Nigerian Electricity Regulatory Commission (NERC) to increase electricity tariff by 40 per cent with effective from July 1, is inappropriate at this point in time. The regulatory agency says the planned hike is in line with the Multi-Year Tariff Order (MYTO). MYTO is a system that provides a 15-year tariff path for the Nigerian electricity industry with limited minor reviews each year based on inflation rate, oil and gas prices and other factors.
Following the recent removal of fuel subsidy and its unpleasant consequences on households, any attempt to increase tariff on electricity will further impoverish millions of Nigerians. The increase in electricity tariff will also have adverse effects on big and small businesses that contribute to the growth of the economy. Therefore, high energy cost will push down output.
According to recent reports, the manufacturing sector spends about N144.5 billion every year on self-generated power supply. The timing for the proposed increment in tariff is wrong. Moreover, there is no appreciable improvement in electricity supply. Last week, electricity generation dropped to less than 3,000 MW or about 37 per cent drop in the last one year. It is clear that the Distribution Companies Discos) are focusing more on profit rather than efficient service delivery.
The federal government says it cannot continue to subsidise the power sector with N50billion monthly. However, we believe that a total reform of the power sector should come first before any plan to increase tariff. It is disappointing that the nation’s power challenge has remained intractable despite huge investment by successive administrations in the sector. Undoubtedly, the current state of electricity generation, transmission and distribution is a reflection of the multiple crises facing the economy. In spite of the installed electricity generation capacity of about 13,000 MW, actual generation capacity delivered to the national grid for transmission to consumers has not surpassed an average of 4,000 MW in the past few years. This is far below the 10,000 MW promised by the Buhari administration.
From 2015 till date, tariff billing has been raised from an average of N23.5 per kilowatt hour (kWh) to N67 kWh. With the planned 40 per cent hike, this will rise to N88 kWh. Besides, the purchasing power of Nigerians is in steep decline, with poverty, unemployment on the increase. Many households are burdened by huge estimated bills for poor power supply, while the cost of prepaid meters has increased by over 200 per cent. According to data from a UK- based research company, Cable, over 100 countries offer cheaper electricity than Nigeria. Nigeria is ranked 109th on the list of countries with the cheapest electricity tariff in the world at N56 for one kWh. The inability of successive administrations to fix the power sector will continue to hamper industrial development, productivity and investment inflows. Renewable energy is one of the solutions to the power sector crisis. Between 2013 and 2022, the national grid collapsed 134 times. The economic loss due to grid collapse is estimated at 2 per cent of the nation’s Gross Domestic Product (GDP). The promise made by the Nigerian Electricity Regulatory Commission (NERC) to provide over 4 million prepaid meters to consumers is yet to be fulfilled, even as the prices of prepaid meters have been hiked by over 100 per cent. According to the 2020 Ease of Doing Business report, 47 per cent of Nigerians lacked access to electricity supply.
According to the Nigerian Electricity Regulatory Commission (NERC), electricity consumers had been billed N1.12trillion in the past two years, out of which N750bilion was paid as tariffs. According to the World Bank report, due to poor power supply in Nigeria, businesses lost in excess of N96.4trillion in the last ten years, at a yearly estimate of $29billion. The loss to the economy is almost double the cumulative national budget of N76 trillion from 2013 to 2022.
The Manufacturers Association of Nigeria (MAN) said that between 2015 and 2019, about 320 firms shut down operations as a result of unstable power supply, while others relocated to neighbouring West African countries. It remains to be seen how committed the government is in revamping the power sector in spite of billions of dollars invested in the sector since 1999. These investments include deals from the African Development Bank (AfDB), and the World Bank. Yet, electricity supply remains a major economic challenge, with generation still below 4,000 MW.
A recent report from the World Bank shows that over 80 million Nigerians or 37 per cent of the population have no access to electricity supply from the national grid, and depend on generators. Last year, the federal government promised that 10 power transformers and 10 mobile substations would be procured, delivered and installed by May 2023. That did not happen. The state of the power sector, and the frequent hike in tariff, should be reviewed. Tariff must be cost-effective and cost-reflective, with improved efficiency and protection for consumers. There should be access to cheap funds for infrastructure development in the sector. Let the planned hike in electricity tariff be suspended forthwith.
