…By Dorcas Funmi for TDPel Media.
Indications suggest that Nigerians may face a significant surge in electricity tariffs, potentially reaching up to 40% more, starting in July 2023.
This development comes approximately two weeks after President Bola Tinubu declared an end to the fuel subsidy regime during his inauguration.
The increase in tariffs is expected to mark the eventual elimination of all forms of energy subsidies in the country.
Tariff Hike and Market Reform:
The tariff hike, set to take effect from July 1, is expected to pose another challenge for the market reform agenda of the Bola Ahmed Tinubu administration.
The government has already removed subsidies on Premium Motor Spirit (PMS) and implemented a floating exchange rate for the Nigerian currency, complicating the price-setting process of the Nigerian Electricity Regulatory Commission (NERC) 2022 Multi-Year Tariff Order (MYTO).
Existing Challenges and Projected Tariffs:
Despite contractual obligations signed with NERC, power sector players have been unable to meet the target of supplying at least 5,000 megawatts annually.
NERC’s current Service Based Tariff (SBT) was based on an exchange rate of N441/$ and an inflation rate of 16.97%.
The projected tariff for July 2023 aimed to remove subsidies and increase the previously frozen tariff bands D and E. Band D was expected to increase from N54.59/kilowatt to N62.16/kilowatt, while band E was expected to rise from N48.37/kilowatt to N61.16/kilowatt.
On average, the tariff increase across the bands would amount to N67/kilowatt.
However, due to the prevailing floating exchange rate and inflation, it is projected that the new average tariff would rise to around N88/kilowatt to cover the sector’s costs.
Contradictory Claims and Reactions:
Despite reports of an impending tariff increase, a source from Ikeja Distribution claims that no such increase has occurred, stating that it would be widely known if it had.
Responding to the potential hike, Adetayo Adegbemle, the Executive Director at PowerUp Initiatives For Electricity Rights (PowerUp Nigeria), acknowledged the normality of tariff adjustments but emphasized the need to review the entire process and consider basing electricity tariffs on the naira going forward.
Segun Ajibola, former President of the Chartered Institute of Bankers of Nigeria (CIBN) and professor of Economics at Babcock University, noted a disparity between the cost of electricity and the value received.
He raised concerns about the affordability and quality of electricity, questioning whether an increase in tariffs would be justified if the supply remains inconsistent.
As Nigerians brace for a potential 40% increase in electricity tariffs from July 2023, concerns arise regarding the affordability and value of electricity for both businesses and households.
While some argue that an upward tariff adjustment can be absorbed if accompanied by constant, sufficient, and reliable electricity supply, others call for a comprehensive review of the tariff process to ensure a fair and equitable system that considers the interests of consumers and the stability of the electricity sector.