…opinions divided over impact
The urban areas of Lagos State, Nigeria’s commercial capital, are the most affected by the new electricity tariff hike announced by the Nigerian Electricity Regulatory Commission (NERC), according to the latest information from the electricity regulator.
This is even as the recent tariff hike from N68 to N225 per kilowatt-hour for Band A electricity consumers has left many stakeholders pondering about the near-term implications of this move on the Nigerian economy, with manufacturers, Organised Labour and energy experts warning that it could lead to food inflation, industry closures and job losses.
NERC last week announced an over 200 percent hike in electricity tariff for Band A customers, that is, Nigerian households and businesses who get electricity supply for at least 20 hours per day, adding that only 15 per cent of the country’s electricity customers will be affected by the new rate increase.
As of December 2023, Nigeria had 12.12 million customers serviced by the 11 distribution companies. Out of this number, 5.61 million customers were metered by 10 distribution companies while 5.83 million customers were under the estimated billing system.
According to Musiliu Oseni, Vice Chairman, Market Competition Rate at NERC, the recent review of the end users’ tariff will not impact other customers under the Band B to E service categories. This means that 85 per cent of the customer population will not be affected by the rate increase.
With the newly approved tariffs, it is expected that electricity subsidies for the 2024 fiscal year will decrease by about N1.14 trillion, thus aligning with the Federal Government’s efforts to restructure the subsidy regime.
Oseni added that NERC has also implemented a strong monitoring system that utilises technology to ensure transparency and accountability in the services provided by electricity providers.
”The federal government has indicated a transition in policy direction towards introducing a more targeted subsidy regime aimed at mitigating the impact of changes in macroeconomic parameters, while largely protecting vulnerable customers and fostering investments targeted at providing efficient service delivery in the Nigerian Electricity Supply Industry (NESI),” Oseni said.
On the areas most affected by the tariff hike, consumption statistics provided by NERC shows that Abule-Egba Business Unit in Alimosho Local Government Area of Lagos State, served by the 33-Ota TCN-AMJE line, stands out with a recorded consumption of 998 kilowatt-hours (KW/h) per day. Another segment of Ijaiye, linked to the 33-Ota TCN in the Abeokuta Expressway axis, enjoys a daily consumption of 930 KW/h.
In the Akowonjo Business Unit, the Able-Taylor axis, connected through the 11-EkoroINJ-T1-Ekoro line, consumes 920 KW/h per day. The Egbeda area, served by the 11-AlimoshoINJ-T8-Alimosho line, consumes 889 KW/h per day.
Anifowoshe axis, a prominent area within the Akowonjo Business Unit, serviced by the 11-New AlausaINJ-T4-Siyanbola, 11-Adeniyi JonesINJ-T1-Ajao, and 11-Adeniyi JonesINJ-T1-Adeniyi Jones lines consume 929 KW/h, 941 KW/h, and 982 KW/h, respectively.
The 11-OgbaINJ-T3-Oba Akran and 11-Oke IraINJ-T2-Kayode lines in Ogba, adjacent to the state capital, consume 888 KW/h and 867 KW/h, respectively. The segment serviced by the 11-Oke IraINJ-T2-Mangoro line stands out with a higher consumption rate of 943 KW/h.
Oregun, another key area within the Akowonjo Business Unit, displays varying electricity consumption rates across different line connections. Consumption varies from the 11-MarylandINJ-T2-Ojota line of 973 KW/h to the 11-New AlausaINJ-T5-Morrison line with a consumption rate of 950 KW/h.
PTC, a notable segment within the Akowonjo Business Unit, consumes 858 KW/h from the 11-MarylandIJN-T1-PTC line to 991 KW/h for the 11-PTCIJN-T2-Awuse line.
In the Ikorodu Business Unit, Lasunwon and Odogunyan demonstrate consumption figures of 890 KW/h and 854 KW/h, respectively.
In the Oshodi Business Unit, Ago and Ajao consume 851 KW/h and 906 KW/h, respectively. Idimu, served by the 33-EjigboTCN-AGODO line, records a consumption figure of 956 KW/h.
The Shomolu Business Unit, including Ikosi, Ilupeju, Magodo, Mende, Olateju, and Oworonshoki, all exhibit varying consumption rates, reflecting the intricate electricity demands within this diverse business unit.
Meanwhile, manufacturers have raised alarm bells, highlighting the unfavourable effects of the tariff hike on their operations. With electricity costs soaring from N68/kWh to N225/kWh for Band A consumers, who receive extended power supply, manufacturers face significant cost burdens that could cripple their businesses.
Analysts say the increase in electricity tariffs would also lead to a surge in production costs, subsequently translating into higher prices for goods and services. This scenario not only threatens the competitiveness of Nigerian products in both local and international markets but also worsens inflationary pressures, making it harder for manufacturers to maintain market shares and profitability.
Reacting to the hike, spokesman of the Nigeria Labour Congress (NLC), Mr Benson Upah, said the move was clearly insensitive and cruel and should be immediately junked.
Upah, in a telephone conversation with Daily Sun, argued that the increase would negatively impact businesses, leading to food inflation, company closures, and job losses.
Upah stated that those likely to benefit from the electricity price hike are the World Bank and the International Monetary Fund (IMF), not the citizens.
“The government’s decision is not only insensitive, it is callous. It’ll further pauperise consumers, especially workers whose wages are fixed and insufficient,” Upah said.
“It similarly makes the operating environment more hostile for manufacturers with potential for an astronomical rise in cost of goods and services or in the worst case scenario, more closures and loss of jobs.
“The only people who stand to gain from this mindless social violence against the people are the World Bank and IMF,” he said.
The former Director General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, remarked that electricity is a social service and that the current increase was discriminatory in approach.
Yusuf said the increase still represents what he called cross subsidy by making the elites pay more electricity in order to subsidize the average and poor Nigerians.
Yusuf, who is the Chief Executive Officer of Center for Promotion of Private Enterprise (CPPE), said the Federal Government must still find ways to continue to fund the power sector, warning that it cannot afford to leave it entirely in the hands of the private sector whose main motive is driven by profit.
But Oseni, Vice Chairman at NERC, said on Arise TV on Thursday that the tariff increase would be cheaper than the accumulated cost of alternative power sources to consumers and would further attract more investment into Nigeria’s power sector.
Also speaking on Arise TV, Professor of Energy and Electricity Law, Yemi Oke, said the government needs to restructure the regime in the power sector, otherwise it would kill the Nigerian economy.
“Government shouldn’t continue to subsidize production despite the challenges. If there is going to be a direct subsidy, it should be to consumers. You can’t subsidize production because it is going to incentivize wastages and humongous production costs,” Oke said.
“The current structure of the power sector is not sustainable and as an energy expert, I feel we have too many subsidies in the energy sector, which include petroleum, gas and power sector. Once we have humongous subsidies in the energy sector generally, would that be sustainable? The answer is No.
“We have always had a mechanism in the law which was never crystalized. I objected to that. The Power Sector Reform Act of 2005 was a funny law that I have always been criticizing since it was put in place. A lot of Nigerians are not aware that we have a Power Consumer Assistance Fund (PCAF), even in the old law.
“PCAF was never operationalized. It was a structured pool of funds meant to subsidize low-income earners who would not be able to afford hikes in electricity tariffs. Government should put in place appropriate structures that would crystallize PCAF. That would reduce the burden on Nigerians,” he said.
