Why Nigeria Suspended Plan To Hike Electricity Tariffs

Why Nigeria Suspended Plan To Hike Electricity Tariffs

The Nigerian Electricity Regulatory Commission (NERC) has given reasons why it decided to suspend the implementation of a new electricity tariff regime in the country earlier scheduled for April 1.

In its latest Order No: NERC/198/2020 issued on Tuesday on the transition to cost reflective tariffs in the Nigerian electricity supply industry (NESI), NERC said it would delay the tariff review for three months till June 30, 2020.

The commission said the decision was in compliance with President Muhammadu Buhari’s decision to grant moratorium for certain federal government funded facilities throughout the period of the global economic crisis as a result of the current coronavirus pandemic.

In his nationwide broadcast on Sunday, March 29, on the impact of the deadly coronavirus, the president listed power generation, transmission and distribution companies among those granted exemptions from certain policy decisions until after the lockdown period declared by the federal government.

The lockdown period, which is for an initial 14 days, was declared to curb the continued spread of COVID-19 in Nigeria.

More details

Prior to the breakout of the pandemic, the 11 electricity distribution companies (DisCos) had submitted Performance Improvement Plans (PIPs) to NERC for consideration in accordance with the requirements of the Power Sector Recovery Programme (PSRP) approved by the federal government.

The PIPs outlined each DisCos plan for improvement of service to electricity customers in the Nigerian Electricity Supply Industry (NESI).

In addition, all DisCos filed applications with NERC for a review of their respective end-user tariffs to guarantee their financial sustainability, except tariff support for the less privileged lifeline end-users.

Between March 25 and April 9, 2020, NERC organised public hearings at different locations within the franchise areas of the respective DisCos to consider the PIP applications.

On March 11, 2020, a similar public hearing was held for the consideration of the application by the Transmission Company of Nigeria Plc (TCN) on the review of rates payable to generation companies.

Part of the resolutions at the end of the public hearing was that customers of the 11 DisCos were willing to pay appropriate tariffs on the condition of guaranteed hours of service, quality of electricity supply and adequate metering.

The hearings also noted the wide metering gap in NESI, currently at about 60 per cent, as a major impediment to both an immediate tariff review and revenue protection.

Impact of COVID-19

However, NERC noted that the current global COVID-19 pandemic has significantly impacted on the availability of imported components for local assembly of meters for supply to customers under the Meter Asset Provider (MAP) Regulations and the roll out plan for the existing stock.

Considering the adverse effects of the COVID-19 pandemic on global economy and the consequential impact on the average Nigerian, NERC resolved to delay the implementation of “the December 2019 minor review of multi-year tariff order (MYTO) 2015 and minimum remittance order for the year 2020” until June 30, 2020 when a new Minor Review Order shall be issued.

Consequently, NERC resolved that there shall be no increase in tariffs to customers on April 1, 2020.

Rather, all DisCos were directed to submit a detailed plan for the attainment of full costs recovery and allowed return on capital (Revenue Requirement) by June 30, 2021.

In addition, the DisCos would ensure the revenue recovery and financial sustainability plans are submitted to NERC by April 21, 2020, including timelines, for transiting customers to higher quality of service.

Ministry’s interventions

The Minister of Power, Saleh Mamman, said on Tuesday the decision by NERC to delay the implementation of the new tariff order was one of several decisions by the government to ensure Nigerians continue to have power supply throughout the period of the COVID-19 pandemic.

He, however, said even after the three months postponement, the tariff increase will not be implemented unless there is improvement of service by the DisCos.

The minister also said the government was working with the Central Bank of Nigeria (CBN) to expedite action on payments to the power generation companies (GenCos) and gas suppliers through the Payment Assurance Facility (PAF) to ensure power supply.

He said the ministry was handling a number of initiatives to support electricity access to the rural and underserved communities through the Rural Electrification Agency (REA) focusing on Solar Home Systems and Solar Mini-Grids.

Apart from the support from the World Bank, African Development Bank, U.S. agency for international development (USAID), DFID and other key development partners to help accelerate power access, he said discussions are also ongoing with the CBN on how to accelerate access to Solar Home Systems and Solar Mini-Grids.

On metering, he said the ministry is working with NERC to review the Meter Asset Provider (MAP) regulation to meet global standards.

He said the ministry is also working with the Ministry of Finance and Nigeria Customs Service (NIS) to guarantee a regime for duties to help accelerate the deployment of electricity components and tools.

Review process

On December 31, 2019, NERC had announced its plans to immediately review electricity tariffs in the country from January 1.

The order, titled “December 2019 MYTO Minor Review Order” for the 11 electricity distribution companies (DISCos) was jointly signed by the Chairman of the Commission, Joseph Momoh, and the Commissioner for Legal, License & Compliance, Dafe Akpeneye.

However, the commission clarified later that the new tariff regime would not take effect until April 1, 2020 to allow it sufficient time to consult all the interest groups following misgivings by many Nigerians.

The federal government then offered to continue to subsidise the gap in electricity cost to consumers pending the adjustment in tariffs.

The review order involved the increase of the electricity tariffs chargeable by the 11 DisCos for all categories of consumers in the country, except the residential category (R1).