The planned electricity tariff hike scheduled for July 1 has been postponed until the first quarter of 2021. This decision was taken by the leadership of the National Assembly after a meeting with the regulators NERC, and DisCo representatives.
In a press statement, members of the National Assembly claimed that while the tariff increase was necessary, the timing was bad as Nigerians are still reeling from the negative effects of the COVID-19 Pandemic.
According to the President of the Senate, Ahmed Lawan, “The agreement here is that there is not going to be an increase in the tariffs on July 1st. The Speaker and I are going to take appropriate action and meet with the President. We are in agreement here that there is no question on the justification of the increase but the time is simply not right and appropriate measures need to be put in place.”
Electricity tariff hikes have remained in the political doldrums for years with the government and national assembly pushing back tariff increases for all sorts of reasons. The latest push back comes at a time when the World Bank just recently approved a $750 million power sector loan for Nigeria.
Why DisCos wanted to increase tariff: The increase in price is a follow-up to the charges set in 2015. The tariff increase would cater for revenue shortfalls in the sector. The order was issued to the 11 DisCos on December 31, 2019.
The Minister of Power, Saleh Mamman, had said in a Nairametrics report that the hike was inevitable due to the rising cost of electricity generation in Nigeria. According to him, improvement in electricity supply necessitated the need to increase electricity tariffs.
Mamma said electricity supply was being affected by cost-ineffective tariffs and that it was a drawback on the operation of the energy distributors. So, if the electricity supply was to improve, there’s a need for the procurement of needed equipment that would reflect on the electricity tariff. Implication: The increase in tariff was meant to stop the continuous subsidy of electricity by cash strapped Federal Government as customers pay the right price. It also meant everyone in the electricity market will take full responsibility for service delivery and payment remittance.
With the tariff increase postponed till next year, DisCos will continue to remit between 30% to 40% (depending on the DisCo) of their monthly collection while the tariff shortfall will be backstopped by the government via subsidies. According to DisCos, current tariffs represent about 60% of the actual cost-reflective tariffs with the government making up for the shortfalls through subsidies. The shortfalls are paid to Generating Companies and Gas suppliers.
The decision to stop the tariff increase is a major set back for the industry that has been plagued by a lack of funding due to challenges attracting investments. According to DisCos, most investors will not invest in the market that is not cost-reflective.