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MYTO: NERC approves tariff hikes for DisCos as electricity subsidy for consumers hits N1.6 trn

*Sanusi Garba, Chairman of the Nigerian Electricity Regulatory Commission, confirms the approval of the Multi-Year Tariff Order for 11 DisCos, stating the Nigerian Government will pay N1.6 trillion to subsidise electricity in 2024

Isola Moses | ConsumerConnect

As widely speculated in the last few months in the economy, the Nigerian Electricity Regulatory Commission (NERC) has approved the plan to hike tariffs for the 11 Electricity Distribution Companies (DisCos) in the West African country.

ConsumerConnect reports in view of the regulator’s approval of the tariff hikes, the DisCos are expected to follow suit and activate the implementation of the new tariffs for electricity consumers across the 36 states of the Federation.

Sanusi Garba, Chairman of NERC, who disclosed this development to reporters at a press conference  held after the Federal Executive Council (FEC) meeting Wednesday, January 17, 2024, in Abuja, FCT, affirmed the Commission’s approval of an upward review of electricity tariffs for consumers.

The Nigerian Government will pay as much as N1.6 trillion to subsidise electricity in the year 2024, report said.

Earlier, the DisCos, June  2023, reportedly said noted to their customers, indicating an increase in electricity tariffs effective July 1 last year.

The power operators were said to have argued that the tariff increases resulted from the floating of the Naira.

The DisCos also noted that the aim of the tariff hikes was to ensure that the electricity industry remains financially viable and sustainable in the face of currency challenges.

Therefore, with the unveiling of a new electricity tariff plan payable by electricity consumers, the industry’s Multi-Year Tariff Order (MYTO) indicated that the order would take effect from January 1 this year,  and shall cease to be effective on the issuance of a new tariff review order by the Commission.

Garba also explained the order states appropriate tariffs that consumers should pay for investors to recover their operating costs in the power sector of the Nigerian economy.

Garba further stated that the Order contains the Federal Government’s policy on ensuring that due to the cost-of-living crisis, consumers will not be made to pay higher than the previous rates.

He noted: “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.”

According to NETC Chairman, the tariff order contains the appropriate tariffs that DisCos should be charging, if they are to remain in business while noting that the rates are very clear.

Garba also explained: “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.”

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

He noted: “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.”

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.

On prepayment electricity meters for consumers

While speaking on metering consumers, Garba said that the Commission had identified that the DisCos had challenges with finances to meter their customers.

The NERC Chairman said: “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.”

He stated: “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.”

Garba also 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.”

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