Electricity consumers on Band A feeders may soon face another tariff hike due to a surge in Nigeria’s electricity subsidy shortfall, now at ₦181.63 billion as of September. This marks a significant increase from ₦102.30 billion in May, according to Everyday Newz.
The electricity subsidy has been a pressing issue since the Nigerian Electricity Regulatory Commission (NERC) removed subsidies for Band A feeders in April. At the time, the subsidy stood at ₦140.7 billion, but by removing the government’s financial support, the tariff rose to ₦225 per kilowatt-hour (kWh) for Band A customers. These customers benefit from at least 20 hours of electricity daily.
This decision sparked widespread protests, including strong reactions from labor unions, educational institutions, and health facilities, who saw their electricity bills skyrocket after the removal of the subsidy. To address public discontent, the government reduced the Band A tariff to ₦206.80/kWh in May, alongside the drop in the overall subsidy to ₦102.30 billion.
However, as economic challenges continued to mount, the subsidy shot back up to ₦158 billion in June, prompting a slight increase in the Band A tariff to ₦209/kWh by early July. By July, the subsidy had reached ₦163.87 billion, followed by ₦173.88 billion in August, and eventually, ₦181.63 billion by September.
The consistent rise in the subsidy shortfall has led to speculations that another tariff increase might be looming in the October Multi-Year Tariff Order (MYTO) unless the cost of electricity generation can be reduced. Much of this increase is attributed to Nigeria’s ongoing foreign exchange crisis, which has played a crucial role in driving up electricity costs.
NERC’s data shows the dollar exchange rate in September was pegged at ₦1,601.50/$1, a sharp rise from ₦1,494.10/$1 in July and ₦1,564.30/$1 in August. These exchange rates, alongside rising inflation—standing at 33.40% for Nigeria in July—have been the primary drivers of the growing electricity subsidy. The Commission emphasized that both the dollar-naira exchange rate and inflation are key factors that determine the cost of power production in the country.
In the MYTO order released to power distribution companies (Discos) for September, NERC highlighted that adjustments are made based on variables beyond the control of power companies. These factors include inflation, exchange rates, generation capacity, and gas prices.
In September, NERC maintained a benchmark gas-to-power price of $2.42/MMBTU as established by the Nigerian Midstream and Downstream Petroleum Regulatory Authority under the Petroleum Industry Act (PIA) 2021. However, power generation costs have been affected by fluctuating gas supply and transportation prices, which are based on gas sales agreements approved by NERC.
In addition, data from NERC shows that the cost of power generation was ₦103.9/kWh in April, dropped to ₦87.33/kWh in May, and rose again to ₦113.69/kWh by September. Distribution companies (Discos) have also seen their operational costs rise, with transmission and administrative costs for the Abuja Electricity Distribution Company (AEDC) reaching ₦10.4/kWh in September, up from ₦9.1/kWh in April.
Despite the rising costs of power generation, the end-user cost-reflective tariff for AEDC was ₦185/kWh in July, increasing to ₦192.2/kWh in August and ₦195.5/kWh in September. However, the allowed tariff for consumers remained at ₦117.31/kWh throughout July, August, and September, highlighting a growing gap between the cost of power generation and the regulated tariffs consumers pay.
This gap has left Discos operating at a loss. Many Discos have begun refusing to off-take electricity from the grid, arguing that the tariffs in other bands, aside from Band A, are non-cost-reflective. A senior official from one of the Discos revealed that their inability to recover costs has made it difficult to absorb additional electricity produced by generation companies (Gencos).
The official, who spoke anonymously, noted that the Discos are “operating at a loss” and that without a tariff review for lower bands and improved metering systems to recover costs, the situation could worsen. He added that, although more power is being generated, the Discos are struggling to distribute it under the current tariff system.
Meanwhile, Adebayo Adelabu, the Minister of Power, recently expressed concern over the rejection of power by distribution companies, calling the situation “regrettable.” Adelabu’s remarks highlight the urgency of addressing the inefficiencies and financial strains in Nigeria’s power sector, which have contributed to the worsening electricity subsidy crisis.
As the Federal Government grapples with rising electricity production costs and the increasing subsidy burden, Nigerians may need to prepare for potential changes in their electricity tariffs. However, any tariff hike could face opposition given the current economic hardship in the country, particularly with the rising cost of premium motor spirit (PMS), commonly known as petrol.
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