According to reports, Nigeria’s population may face more challenging times ahead as electricity tariffs are projected to increase by over 40 percent in the near future.

This rise in tariffs could ultimately result in the elimination of all energy subsidies in the country.

Currently, the electricity sector relies on a monthly subsidy of approximately N50 billion, stemming from a shortfall in revenue.

The tariff hike, scheduled to take effect from July 1, will pose another significant test for President Bola Ahmed Tinubu’s administration and its ongoing market reforms.

The government has already taken steps to remove subsidies on Premium Motor Spirit (PMS) and implemented a floating exchange rate for the national currency.

These decisions have added complexity to the price-setting process of the Nigerian Electricity Regulatory Commission (NERC) and its 2022 Multi-Year Tariff Order (MYTO).

Despite power sector players failing to meet the target of supplying a minimum of 5,000 megawatts, even after signing contracts with the Nigerian Electricity Regulatory Commission (NERC), the current Service Based Tariff (SBT) is based on an exchange rate of N441/$ and an inflation rate of 16.97 percent.

According to NERC’s directives in 2015, the average tariff for distribution companies (DisCos) and different categories of end-users was N25 per kilowatt, as per Order 198/2020, which came into effect on September 1, 2020.

However, in the MYTO for 2022, the average tariff increased to N60 per kilowatt across all customer categories, and in the most recent update, it stands at N64 per kilowatt.

The determination of the 2015 tariff relied on a foreign exchange rate of N198.97/$, which increased to N383.80/$ in 2020 and further to N441.78/$ in 2022. In terms of inflation, the 2015 MYTO utilized an 8.3 percent rate, which rose to 12 percent in 2020 and reached 16.97 percent in 2022.

Currently, the inflation rate stands at 22.41 percent, and experts predict it could reach 30 percent by the end of June, considering the floating of the naira and the removal of subsidies on Premium Motor Spirit (PMS).

The tariff determination process takes into account various factors, including the significant metering gap of over seven million, gas prices, losses within the system, and the actual generation capacity. These elements play a role in determining the final tariff.

As anticipated, NERC had projected that the tariff for July 2023 would eliminate subsidies and introduce increases to the previously frozen tariff bands D and E.

These adjustments were intended to raise the bands from N54.59/kilowatt to N62.16 for band D and from N48.37/kilowatt to N61.16 on average. Moreover, the average increase across all bands was expected to reach N67/kilowatt.

However, due to the ongoing floating of the naira and the significant inflationary pressures, it is now projected that the new average tariff will need to be approximately N88/kilowatt for the power sector to recover its costs.

According to energy lawyer Madaki Ameh, the continuous and frequent increases in power tariffs are akin to a form of blackmail against electricity consumers.

Amen said “Indexing the cost of electricity on the dollar is a huge mistake because most of the inputs for electricity supply are local. The DisCos are also holding Nigerians to ransom by failing to increase the supply base, thereby spreading the tariffs across a broader spectrum of consumers to reduce the unit cost of electricity.”

He insisted that as long as there remain many unmetered consumers and many others not connected to the grid at all, the few consumers on the grid would continue to be subjected to unjust tariffs, which are not reflective of the quality of service delivered.

Ameh hoped that the signing into law of the new Electricity Act would mark “the beginning of light at the end of the long tunnel of inefficient and epileptic power supply in Nigeria.”

Segun Ajibola, the former President of the Chartered Institute of Bankers of Nigeria (CIBN) and a professor of Economics at Babcock University, highlighted that there remains a gap between the cost of electricity and the value it provides in exchange.

“Nigerians are still struggling to keep pace with the cost of energy for business and household use. If the electricity tariff goes up as envisaged, the question remains if there will be value for the quantum of electricity so paid for.

“The truth remains that if electricity supply is constant, of the right quantity and quality, the envisaged upward review in the tariff will be gladly absorbed by the populace,” he said.

Lanre Elatuyi, an Electricity Market Analyst, expressed that the recently implemented tariff rate would have significant implications. He emphasized that the devaluation of the Nigerian currency poses a major challenge for companies with dollar-denominated loans to repay.

He said “They will need more naira today to buy a dollar. They need to manage their exposure to foreign exchange risk. Even operators of hydro plants pay their concession fees in dollars. So, wholesale electricity price will be adjusted upward and this will get to the end users’ tariffs too.”

Senator Shehu Sani, a prominent Nigerian lawmaker has accused President Muhammadu Buhari’s government and state governors of secretly selling five power generating plants without disclosing the utilization of the funds received.

He disclosed this in his Twitter handle on Monday.

Senator Sani, known for his outspoken nature and activism expresses his concerns over the alleged undisclosed sale of the power plants.

He claimed that the government, in collaboration with state governors, had carried out the transactions without informing the Nigerian public about the purpose of the funds acquired from the sale.

The post reads “Buhari’s Government in collaboration with the State Governors quietly sold the five power generating plants without telling the country what the money was used for.

With the clock ticking in indication of the close of the President Muhammadu Buhari era, facts are beginning to emerge that he might have perfected plans to bequeath chaos in the electricity sector to the incoming administration.

Biztellers reports that dark days are in the horizon as the forces of the Nigerian government in the power sector have concluded plans to disconnect debtor electricity distribution companies.

Biztellers gathered that at the behest of the Federal Government, the Transmission Company of Nigeria (TCN) and the Market Operator (MO) would pull the plugs in no distant time on the back of notices of disconnection from the grid served on some of the Discos by the MO.

It was further gathered that the MO, a unit company of the TCN had notified the Discos as well as the generating companies of the disconnection plan, on the grounds of failure to keep up with remittances of ancillary services bills.

Executive Director, MO, Eddy Eje, in a recent media statement had cautioned the erring Discos to make necessary payments to avert the bad situation becoming worse.

However, the hard conversations saw some relief with the intervention of the Minister of Power, Abubakar Aliyu, who brokered a 60-day grace period.

The general perception is that the defaulters ought to have complied with the provisions of the Market Rules with respect to payment of their outstanding invoices, posting of adequate bank guarantees, and forwarding of their active Power Purchase Agreements as the case may be, to the MO/TCN.

In the absence of this provision, electricity power consumers in Nigeria can expect dark days, as there are no clear signals from the Discos of compliance.

What with Managing Director/CEO, Ibadan Electricity Distribution Company, Kingsley Achife signaling that there would be mass disconnection from the national grid.

He made this known in a media statement in which he fingered poor remittances by customers.