Sometimes in November 2020, the Nigerian Electricity Regulation Commission (NERC) implemented a hike in the electricity tariff payable by Nigerians. However, this was met with strong criticism. Well, they have finally approved the hike of tariffs payable by Customers of the 11 Distribution Companies otherwise known as Discos.
This is your step by step guide to understanding all about the new payable electrical tariff and why you have to pay that much.
First, what is an electrical tariff? It is the amount of money frame by the supplier for the supply of electrical energy to various types of consumers. In other words, the tariff is the method of charging a consumer for consuming electric power. The tariff covers the total cost of producing and supplying electric energy plus a reasonable cost.
Now, why is the Federal Government of Nigeria increasing Electricity Tariffs? Well, here are a few reasons:
- Inflation rate: The November 2020 inflation rate of 14.9% was relied upon to project for the year compared to the 13.1% average for the period January to November 2020.
- Exchange rate: NERC switched from using N360 or a fixed CBN exchange rate, to the NAFEX rate which it placed at NGN/USD exchange rate (+1%) of N397.44. This was the rate as of December 29, 2020.
- US Inflation rate which is often used for Gas prices was set at 1.22% also based on November 2020 rates.
- Generation capacity adopted for the year remained unchanged, suggesting NERC was not expecting any major increase in 2021 despite increasing the cost of power.
- “The year 2020 projection on available generation is maintained for the first half (Jan-Jun) of 2021 to account for the impact of the delay in the implementation of MYTO-2020. No change was applied to generation projections from July 2021 and beyond.”
- Gas Prices which is a major factor in determining electricity tariff was $2.5/MMBTU while gas transportation cost of US$0.80/MMBTU and gas prices outside the regulated rates for GenCos with effective Gas Sale Agreements were maintained.
In the order first given in September 2020, only customers with a guaranteed minimum of 12 hours of electricity can have their tariffs adjusted.
Those who get less than 12 hours’ supply will experience no increase. This is the largest group of customers. It will also ensure that unmetered customers will not be billed beyond the rate payable by metered customers in their localities.
However, with the tariff increase, all customers will see their tariffs increased regardless of the rate of electricity they get each month. Now, according to the National Electricity Regulatory Commission, there are five (5) major Tariff Classes each of which is divided into sub-classes based on a range of energy consumption. Every Electricity consumer must belong to one of these 5 classes. The 5 major tariff classes are as follows:
- A (Residential): A customer who uses his premise exclusively as a residence – house, flat, or multi-storied house.
- B (Commercial): A customer who uses his premise for any purpose other than exclusively as a residence or as a factory for manufacturing goods.
- C (Industrial): A customer who uses his premises for manufacturing goods including welding and ironmongery.
- D (Special): Customers such as agriculture and agro-allied industries, water boards, religious houses, government and teaching hospitals, government research institutes, and educational establishments.
- E (Street Lights): Street Lights
Customers on Tariff Class A, B, and C will see their tariff go back to the tariff order released on September 1st, 2020. Some of these customers will see their tariff increase by as high as 120% compared to the pre-September 1st 2020 levels.
Customers in tariff classes D & E who are those with less than an average of 12 hours of electricity daily also saw their tariff increase albeit slightly and not up to the levels originally included in the September 2020 tariff order. In general, Nigerians (including businesses) will see their tariffs rise by as much as 75% depending on the distribution companies.
Now, the new tariff increases effectively mean the Federal Government has removed an estimated 80% of its subsidy on electricity, giving the Discos the cost-reflective tariffs that they have requested for since 2016 when the tariff was last increased.
DisCos maintain that the extra amount being paid by electricity customers will be passed on to government agencies; Nigerian Bulk Electricity Trader and the Market Operator who will then pay gas providers, the Transmission company, and generating companies.
The government increased the minimum wage payable to workers in the country and went aged to increase everything they could lay their hands upon — from food to fuel and now electricity. Seems the government operates this way — Give you a free necklace now because they want to come for your head next.