In response to the rising expenditure on electricity subsidy, the Federal Government of Nigeria is reportedly considering the request made by power distribution companies (Discos) for a review of their tariffs. Recent data from the Nigerian Electricity Regulatory Commission (NERC) suggests that previous tariff hikes by Discos have helped save the government from paying an additional N1tn in annual subsidies to power firms.
The NERC report, titled “Overview of the Nigeria Electricity Supply Industry,” was released in July 2023 and provides insights into the country’s tariff review journey. According to the report, between January 2020 and January 2023, tariffs increased from 55% to 94% of the cost recovery. The report further emphasizes that without the tariff reviews initiated in 2019, government subsidies to power firms would have grown to around N1tn per year by 2023. The implementation of the Service-Based Tariff played a crucial role in transitioning to cost-reflective levels.
The NERC report reveals that subsidy payments (tariff shortfalls) made by the Federal Government between 2015 and 2022 reached N2.8tn by December 2022. Additionally, between January and April 2023, electricity subsidies amounted to N57bn. The Service-Based Tariff scheme has played a vital role in reducing the government’s expenditure on power subsidies. The report states that annual subsidies decreased from N528bn in 2019 to N144bn in 2022, with a subsidy of N57bn reported for the year 2023 up to April.
The Federal Government has been incrementally raising power tariffs through the NERC with the objective of eliminating electricity subsidies. However, a recent tariff hike announced by some Discos was met with widespread criticism, prompting a backtrack by the companies when it became clear that the Nigerian Electricity Regulatory Commission had not approved the increase. This development led to concerns among power consumers, with prepaid users rushing to purchase additional electricity units in anticipation of a potential tariff hike.
The NERC notice, published in The PUNCH, stated that the 11 successor electricity distribution companies have filed an application for rate review, citing changes in macroeconomic parameters and other factors affecting service quality, operations, and sustainability. In response, the NERC plans to address the power firms’ requests for a tariff hike during an upcoming meeting. The commission intends to scrutinize the justification for the increase, such as whether the companies have fulfilled their obligations outlined in their Performance Improvement Plan, including the purchase of transformers, lines, meters, and the provision of extended hours of electricity supply.
The NERC has also invited the general public to submit comments on the rate review applications by the distribution licensees, urging interested stakeholders to review and consider the excerpts of the applications filed with the commission.
As the Federal Government evaluates the request for tariff review, the ultimate aim is to strike a balance between ensuring cost-reflective tariffs for power distribution companies and minimizing the burden of electricity subsidies on the government.