Tariff hike: Nigerians in panic bulk energy buying

July 2, 2023 Mary

Confusing signals emanating from electricity distribution companies (DisCos) in the country and the Nigerian Electricity Regulatory Commission (NERC) are keeping electricity consumers on edge.

Many are making panic bulk energy purchases unsure of dithering noises from the regulator and the DisCos.

On June 22nd, the Abuja Electricity Distribution Company (AEDC) announced that there would be an upward review of the electricity tariff effective July 2023.

The tariff increase, the company said, was influenced by the fluctuating exchange rate.

“Effective July 1, 2023, please be informed that there will be an upward review to the electricity tariff influenced by the fluctuating exchange rate.
“Under the MYTO 2022 guidelines, the previously set exchange rate of N441/$1 may now be revised to approximately N750/$1 which will have an impact on the tariffs associated with your electricity consumption,” the statement read.
The company also encouraged customers with prepaid meter to consider purchasing bulk energy units before the end of the month as this will allow them take advantage of the current rates and potentially make savings before the new tariffs come into effect.

“For customers, with a prepaid meter, we encourage you to consider purchasing bulk energy units before the end of this month as this will allow you take advantage of the current rates and potentially make savings before the new tariffs come into effect.

“For those on post-paid (estimated) billing, a significant increment is imminent in your monthly billing, starting from August,” it added.

A few days later, NERC announced that it was yet to give official approval to a projected 40 percent electricity tariff increment by the electricity distribution companies.

While the NERC multi-year-tariff-order (MYTO) allows tariff review every six months while considering key variables like exchange rate, inflation and gas pricing, the regulator said it had not officially issued any directive on any tariff hike.

The tariff hike is coming at a time when the industrial sector is hoping to recover from losses and set to scale up production after eight debilitating years of economic downturn. The new tariff order will make it rethink its planned operations.

Nigeria’s Manufacturers Association of Nigeria (MAN) described the plan to increase electricity tariffs as outrageous.

Manufacturers will eventually pass on the additional cost of production to the consumers of their products by increasing product prices in the market.

For most Nigerians, the proposed electricity price hike would be an unfair addition to the expansive and stultifying yoke of survival they face every day.

Already reeling under a sharp rise in the prices of essential commodities, households across the country will now need some further belt-tightening as they face a potential hike in domestic power tariffs – one of the steepest in the last five years.

NERC’s tariff increases have significantly outstripped inflation since 2015. The country’s current inflation rate is 22.41 percent, with many experts projecting that it would hit 30 percent by the end of June due to the floating of the naira and removal of subsidy on PMS.

The projected tariff for July 2023 was expected to remove subsidy and increase the previously frozen tariff bands D and E, increasing the bands from N54.59/kilowatt to N62.16 for band D, and N48.37/kilowatt to N61.16 on average, with an average increase across the bands moving to N67/kilowatt.

The DisCos say the upward tariff review would encourage investment, leading to the supply of additional power to consumers.

Nigeria’s President says he wants the poor to breath and not be suffocated.

Nigerians do not believe him. They are facing unprecedented microeconomic shocks that have borne the brunt of the mismanagement of the country’s economy over the last eight years by the ruling All Progressives Party (APC). The burden of years of mismanagement has been rudely transferred to the masses.

Nigeria’s new administration scrapped the popular but economically inefficient petrol subsidy regime that provided fuel to Nigerians at discounted rates, tripling the price of petrol.

The government’s reform of the unproductive foreign exchange regime has also seen the local currency fall steeply against major currencies. The government has also chosen to implement a 7.5 percent charge on Value-Added Taxes, VATs, on several consumable items.
“It will not be fair to impose the tariff on us while we are still be suffocated with N540 fuel, food inflation, unending power cuts and high cost of living generally,” Jubilee Ogwoja, an Abuja resident posited.

“The burden is getting too much. The electricity price hike they are proposing is unfair, unaffordable, and unjust. They should allow us breath. They should not suffocate us,” Ogwoja said.

While electricity tariff has been increased in the last eight years by 186 percent, epileptic power supply costs businesses in Nigeria about $29 billion yearly.
A World Bank 2021 Power Sector Recovery Programme factsheet found that, “Businesses in Nigeria lose about $29bn annually because of unreliable electricity. Nigerian utilities get paid for only a half of the electricity they receive.”
“Six in 10 of registered customers are not metered, and their electricity bills are not transparent and clear. This contributes to resistance to pay electricity bills,” the bank’s practice manager, West and Central Africa Energy, Ashish Khanna had noted.

For Nigerians, power sector reforms have not worked out for them. It is not adding value to them.
DisCos have become a significant burden on Nigeria’s power system. Their poor financial performance has been weighing down the entire sector with their inability to pay power generators on time, manage their losses, and iron out other inefficiencies.

Disproportional increases in the electricity tariff are mainly due to DisCos having to recuperate capital lost through theft and wasteful expenditure, not necessarily the increased cost of producing electricity.

In 2019, the Federal Government unbundled the Power Holding Company of Nigeria (PHCN) and handed over 18 utility firms to private investors. The government raked in $2.5 billion (about N916.575bn) from the transaction involving six Generation Companies (GenCos) and 11 Distribution Companies (DisCos).
According to the performance agreements, the privatised GenCos and their new owners were to have added 5,000 megawatts (MW) of electricity to the national grid after five years, which was 2018.

The DisCos were to have metered their customers and reduced their Aggregate Technical Commercial and Collection (ATC&C) losses in the first five years when a review would be done on how well the investors managed the firms.
Ten years later, electricity consumers still get epileptic supply, buy meters, transformers and other electrical materials across the 11 privatised DisCos.
As a recent newspaper editorial noted, “The increase in electricity tariff is taking place in an environment where the DisCos have failed to provide regular and reliable supply of electricity. Indeed, these companies have continued to exploit citizens with estimated bills years after the government directed them to provide customers with meters. What is more, they have increased tariff multiple times in the last eight years, from an average of N23.5 kilowatt-hour (kWh) in 2015 to N74 kWh as of June this year. Clearly, in many areas, the government has failed to regulate the behaviour of the companies but has allowed them to continue to pass on big burdens to customers without improving their quality of service. To be sure, the failure to protect customers demonstrates the regulatory capture in the electricity sector. The government has only demonstrated resourcefulness and dexterity in placing burdens on hapless citizens without showing commitment and creativity in making the electricity supply system to work.”
While the NERC and DisCos continue to play hide and seek on the proposed tariff hike many Nigerians in the cities said they decided to buy more energy units because they knew the hike would take place despite the refutations.
“Nobody should tell me the story about things work in Nigeria. I am old enough to know that once a policy is muted, particularly the one that will oppress the poor, it must be implemented. So, despite the denial that the new tariff will not take effect now, I refused to be hoodwinked. I decided to buy N100,000 (One hundred thousand naira energy unit) that will last for some months,” a man who simply identified himself as Mr. Jones told our reporter.
A Lagos resident who also disclosed that he bought N30,000 (Thirty thousand naira) worth of energy unit, said he did not want to be taken unawares.
“I knew that the DisCos will effect the increase and I did not want to be taken by surprise, particular if it comes at a point I may not have such an amount of money to buy. I did not buy because I thought it would last me for so long, No; just to take off the initial shock,” Mark Odion said.

BusinessDay investigation showed that a lot of people in Abuja, Lagos and Benin said they ignored the denial of a likely tariff hike to buy bulk energy units.

“Initially, I was not interested in doing a bulk purchase because I said why must I be panicky? But when I started seeing messages on many of the WhatsApp groups that I belong to, urging people to consider buying bulk energy units, I changed my mind. I bought N200,000 (Two hundred thousand) worth of energy units. I actually recharged before July 1st. So, whatever the NERC and DisCos may decide to do, I am less-bothered,” a Lagos-based customer, who spoke with BusinessDay on condition of anonymity, said.

A Benin-based woman, Veronica, who is an accountant by profession, said she prevailed on her husband and some other family friends to buy bulk energy units.
“Whatever that is conceived in Nigeria by government does not go un-implemented. I have followed the arguments for the tariff hike and I know there is no way they would not do it. I started sending messages to family members and friends, encouraging them to buy, but you know not everybody will see things from the same perspective. I convinced a number of people both in Benin and elsewhere to buy. Whether they increase or not, there is no regret because it has enabled us to forget about recharge for many months to come,” she said.