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Nigeria’s average electricity tariff drops by 48% in 4 yrs

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By Prince Okafor

NIGERIA’s average electricity tariff drops by 48 percent in four years to 8.10 cent per kilowatts hours, kWh, from 15.67 per cent recorded in 2014.

In its latest report obtained by Vanguard, the World Bank stated: “Between 2009 and 2014, rapid movement towards cost reflexivity were made such that by 2014, the average end-user tariff in Nigeria was close to the median for other West African countries.

electricity

“However, between 2015 and 2018, Nigeria’s tariff collapsed and its average end –user tariff fell back to less than 40 percent of the median for West African region.”

It stated that despite best intentions by the Federal Government ‘to bridge the gap through privatisation and other measures, insolvency crisis continue to hit the operations of stakeholders, including the Electricity Distribution Companies, DISCOs, to Transmission Company of Nigeria, TCN, to Electricity Generation Companies, GENCOs, to gas production and transportation entities.

In an interview with Vanguard, the Executive Secretary, Association of Power Generation Companies (APGC), Dr Joy Ogaji, stated that, despite privatization, debts in the sector keeps mounting on daily basis due to several irregularities.

She said: “Lack of adherence to contracts running the market is a major impediment to the growth of the sector. There is no sanctioning of defaulters. There is need for regulatory agencies to ensure that all sector players are adhering to terms and conditions of contracts.

“Poor revenue collection by the DISCOs is a major concern to the sector, thus, making it difficult for GENCOs invoices to be settled accordingly. Also, the inability of the transmission and distribution networks to take power to the consumers is a challenge. This has resulted in frequent system collapse and load shedding as the grid cannot conveniently take over 4,500 megawatts, MW, without dropping load.”

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Impact

Meanwhile, Vanguard gathered that the lack of tariff adjustment severely impacted the power sector and resulted in a shortfall of N458 billion due for Distribution Companies, DISCOs, from electricity consumers between 2015 and 2016 alone.

For instance, in 2010, when the federal government published the Roadmap for Power Sector Reform, it openly acknowledged that the country’s regulated electricity tariffs were less than 40 percent of the minimum level required for cost-reflectivity.

The Sector Lead, Distribution Power, Advisory Power Team, Office of the Vice President, Morakinyo Beckley, said: “In Naira terms, the average levelized end user tariff at the time was N8.5kWh (equivalent to just 5.7 US cents/kWh). As shown in the table below, tariff in Nigeria was also far below the tariff applicable in all other West African countries.

“At the time, the FGN recognised that an increase in tariff would not be popular with customers. But they also recognised that the sustainability of the entire sector could not be sustained without a transition to cost reflectivity and that the longer this transition was delayed, the more painful it would be.

“Accordingly, by 2014 FGN had succeeded in nearly tripling the average and levelised tariff from just N8.5/kWh (5.7 cents/kWh) to N29/kWh (15.7 cents/kWh) and Nigeria’s electricity sector was on a promising trajectory towards full value chain solvency.

“Thus, by the beginning of 2015, payments by DISCOs (of their wholesale bills) had risen to an average of more than 80 percent and the general perception in the industry was that this should soon rise to 100 percent.”

Falling oil prices

Beckley stated that the transition to sector sustainability was reversed between 2015 and 2018 when falling oil prices triggered a sharp decline in revenues, leading to rapid weakening of the value of the Naira while electricity tariff, in Naira terms, remained essentially unchanged.

She said: “The impact on the sector was disastrous and for predictable reasons, especially as the electricity sector has a lot of foreign components. For instance, turbines, generators, transformers, transmission lines, fuel gas and long-term service agreements are purchased or negotiated in foreign currency.

“On a conservative estimate, at least 80 percent of all the costs in the sector are pegged to foreign currency movements.”

Backward movement

According to Beckley, “The reluctance or inability to adjust electricity tariff has wiped out all the gains achieved between 2010 and 2014, thus returning the sector to a state of insolvency.

“The other unfortunate consequence of this collapse in the foreign currency value of the tariff was that, it constituted a violation of the promise made by the Federal Government when it privatised the DISCOs in November 2013.”

She stated: “The government then promised to apply the rules set out in the MYTO which mandated adjustments every six months (minor reviews) and every five years (major reviews) to take account of movements in currency exchange rates and inflation.

“By avoiding mandated adjustments to retail tariff as at when due in accordance to the agreements signed with the DISCOs, the FGN through NERC effectively broke this contractual obligation. In the process, it therefore deprived itself of any meaningful ability to hold the DISCOs to account.”

She stated: “It became clear that the federal government was not willing to increase tariff and meet other commitments such as the N200bn tariff support over a five-year period, payments from the DISCOs to Nigerian Bulk Electricity Trading Company fell from over 80 percent to less than 33 percent (and, in some months, considerably less than this).”

Crazy billing

Investigation showed that the poor financial position in the sector has affected the ability of operators, especially the DISCOs, to provide efficient services to consumers.

For instance, the DISCOs have not been able to provide meters to consumers, thus resulting in their continued exploitation through highly estimated bills.

However, the Nigerian Electricity Regulatory Commission, NERC, has not yet been able to assist consumers, despite its promise to ensure pre-paid meters were supplied to all as far back as 2016.

In fact, in a statement obtained by Vanguard, the commission had stated: “NERC has said that its directives to DISCOs to meter their maximum demand customers not later than November 30, 2016 was without prejudice to provide meters to all classes of electricity customers in line with their performance agreement.”

“The acting Chairman, NERC, Dr. Anthony Akah while providing further insight into the directives to DISCOs to meter their MD customers said that default will attract sanctions beginning December 1, 2016.”

 

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