REVEALED: Why NERC is introducing new electricity tariffs

In less than a week that the Nigerian Electricity Regulatory Commission (NERC) announced the upward review of electricity tariffs that would be paid by Nigerians, the Commission has provided further insight.

An information signed by the General Manager of the Public Affairs of NERC, Dr Usman Abba Arabi and published on its website disclosed that while the Commission has not approved other tariffs plan yet, the tariffs reported by some sections of the media are only a review of the 2015 tariff regime to account for changes in macroeconomic indices between 2016 and 2018.

New tariffs explained: NERC noted that the minor review implemented was a retrospective adjustment to reflect some economic fundamentals.

According to the documents uploaded on the website of NERC, the new tariffs are in consonance with the changes in relevant macroeconomic variables, and the available generation capacity in updating the operating 2015 Multi-Year Tariff Order (MYTO).

Some major reasons for tariff review were highlighted.

NERC, electricity tariff

Macroeconomic concerns: According to NERC, movement in inflation, exchange rate, gas price and capital expenditure allowance were all contributory factors.

  • On inflation, NERC stated that the actual yearly average inflation rate of 15.6%, 16.5% and 12.1% for the years 2016, 2017 and 2018 were utilized for the review based on the data obtained from the National Bureau of Statistics (NBS).
  • Explaining the exchange rate factor, NERC disclosed that in line with the provisions of the Regulation on Rate Review, CBN official exchange rates were used in the review. The average NGN/USD exchange rates of N255.90, N308.80 and N309.14 were used for the years 2016, 2017 and 2018.
  • Also, NERC noted that the Commission had maintained a gas price of US$2.50/MMBTU and gas transportation cost of US$0.80/MMBTU for the review. However, other generating companies had contracted different gas prices outside the regulated rates as provided in their respective individual Gas Sales Agreements.

Revenue Shortfalls: NERC disclosed that the minor review came as a result of revenue shortfall that might have arisen due to the difference between tariffs approved by the regulator and actual end-user tariffs.

The breakdown of revenue shortfall included in NERC reports shows that the entire eleven Distribution Companies (DIsCos) in Nigeria recorded revenue shortfall of N1.05 trillion between 2015 and 2018.

According to NERC, under the Power Sector Recovery Plan (“PSRP”) approved by the Federal Government, all accrued liabilities in DisCos’ financial records arising from tariff shortfalls shall be transferred off the balance sheet and fully settled under the financing plan of the PSRP initiative.

A new development: Included in the NERC report is a new order directing all the ministries and agencies of government (MDAs) to be metered by DisCos. A further review of the report suggests that the revenue shortfall experienced by the DisCos might be traceable to the refusal of the MDAs to pay their bills, and NERC appears to have fully empowered DisCos to do the needful in enforcing revenue collection.

Electricity tariff

The statement released by NERC reads: “This Order reiterates that the responsibility and initiative for revenue collections from all customers including Ministries, Departments and Agencies (“MDAs”) of States and Federal Government rests with the DisCos.

“Accordingly, this Order makes it mandatory for all DisCos to meter all MDAs with appropriate meters of their choice within 60 days from the effective date of this Order. All DisCos reserve the right to disconnect any MDAs defaulting in the payment for electricity in line with the Regulation on Connection and Disconnection Procedures for Electricity Services.”

Another tariff plan? While electricity consumers will still have to adjust to the reviewed tariffs which will begin by 2020, NERC stated that a new tariff is in view, and it will be done through wide consultation of stakeholders before the final decision is reached.

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