NAIJA BIZ

Tariff Hike postponed till first quarter of 2021

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 seen by Nairametrics, 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 lack of funding due to challenges attracting investments. According to DisCos, most investors will not invest in the market that is not cost-reflective.
 
See the press release below.

 

PRESS STATEMENT

N’Assembly leadership halts planned hike in electricity tariffs

The leadership of the National Assembly on Monday waded into the controversy on the planned hike in electricity tariffs from July 1st, 2020 and succeeded in convincing the Distribution Companies(DISCOs) to defer the plan till the first quarter of 2021.

The President of the Senate, Ahmad Lawan, the Speaker of the House of Representatives, Rt. Hon. Femi Gbajabiamila and other principal Officers of the two Chambers met at the National Assembly with the Chief Executives of the government electricity regulatory body and DISCOs across the country.

Also in attendance were the Chairmen of the Committees on Power from the Senate and House of Representatives.

The National Assembly leaders were emphatic at the meeting that the timing of the planned hike was wrong even though they had not much issue with the need to introduce a cost-reflective tariffs for the power sector to attract the much-needed investment.

In the course of the meeting, the DISCOs too admitted that they were not well prepared for the planned hike in tariffs even though they so much desired the increase.

The meeting agreed to defer the planned hike till first quarter of next year while the leadership of the National Assembly promised to meet with President Muhammadu Buhari on the issue.

“The agreement here is that there is not going to be any increase in the tariffs on July 1st,” Lawan said at the end of the meeting.

“The Speaker and I, we 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

“So between now and the first quarter of next year, our task will be to work together with you to ensure that we put those blocks in place to support the eventual increase in tariffs,” Lawan said.

Lawan said the government has been doing a lot as part of its obligations to provide some form of Intervention.

“I’m quite aware that for this year, probably starting from last year, over N600 billion was earmarked for this sector to improve.

“The potential increase in the tariffs is definitely something that will be of concern to us in the National Assembly.

“There is too much stress in the lives of Nigerians today and indeed across the world because of the challenges imposed by COVID-19 pandemic and even before then, we had issues that would always make it tough for our people to effectively pay the tariffs.

“One way or the other, for this business to flourish, for this sector to be appropriately fixed, for it to attract investment, something has to give way, there is no doubt about that but it is also crucial that we look at the timing for any of our actions,” Lawan said.

In the same vein, Rt. Hon. Gbajabiamila said the National Assembly is on the same page with the DISCOs on the issue of cost-reflective tariffs.

“There is time for everything. A well-intended programme or policy of government can fall flat on the face and never recover if you do it at a wrong time. I think we all agree to that.

“There cannot be a time as bad as this for us to increase anything. Forget about electricity, anything. Whereas, even in time of decreasing revenue, we are even reducing the pump price. I don’t know how we can justify an increase in the cost of electricity at this time in Nigeria.

“The good things is that we have agreed that we need to do something about the cost,” the Speaker said.

Gbajabiamila posed some questions to DISCOs and the Nigerian Electricity Regulatory Commission(NERC): “How did we arrive at the tariffs or costs. Who were the stakeholders that were present. What was the role of the National Assembly. More importantly, is the President aware of this because the President is perhaps the biggest stakeholder of all, apart from the Nigerian people.

“Whatever will affect his government is something that should concern all of us. I think this will affect his government. This timing. Not the increase. The timing. I think it will affect his government and if it is going to affect his government, we should all rally around our people, our president and the government to make sure we do the right thing,” Gbajabiamila said.

The representatives of the DISCOs said if the planned hike is eventually deferred till next year, the government should continue to bear the difference in the present tariff and what was considered as the appropriate tariff.

In attendance at the meeting were the representatives of NERC, Kano Electricity Distribution Company, Ikeja Electricity Distribution Company, Kaduna Electricity Distribution Company and Eko Electricity Distribution Company.

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