The Electricity Price Hike Fully Explained
In the most recent news, the Nigerian Electricity Regulatory Commission (NERC) and the Distribution Companies (Discos) on the 1st of September implemented an increase in the unit price of electricity. The last unit price for electricity was set in 2015. The news has been received with protests and threats of protests.
The Best Protest Is To Go Solar!
As the nation prepares to deal with waves of protests regarding the news, the most intelligent and pragmatic response to the news is to go full time solar. Considering the economic storms of our time, it is most unlikely that the price hike would be reversed.
A stand-alone inverter and battery system would still depend on grid power to charge. But a well-designed solar and battery system guarantees 24-hour electricity while eliminating any concerns for the effects of the fuel and electricity hike. SolarKobo has a financial plan that enables its customers to spread their investment in a solar power system over a period reaching up to twelve months. After installation, SolarKobo provides maintenance service for its customers across Nigeria.
A Long Time Coming?
On December 31, 2019, NERC disclosed its plans to immediately review electricity tariffs in the country from January 1. The order, titled December 2019 MYTO Minor Review Order for the 11 electricity distribution companies (DISCos), was jointly signed by the Chairman of the Commission, Prof. James Momoh, and the Commissioner for Legal, License & Compliance, Dr. Dafe Akpeneye.
But the commission said that the new tariff regime would not take effect until April 1, 2020 to allow it sufficient time to consult all the interest groups following misgivings by many Nigerians.
By time April 1, 2020 the coronavirus pandemic entered into full swing forcing the lockdown of activities across many sectors and again, the implementation of the hike was postponed until July 1. After a meeting between the leadership of the National Assembly, the DisCOs and NERC, the hike was postponed to the first quarter of next year. The NAS while admitting that the tariff increase had become a necessity argued that the timing was bad as Nigerians are still reeling from the negative effects of the COVID-19 Pandemic.
What Electricity Users Will Pay Henceforth
The unit price of electricity is determined by factors that includes but are not limited to the number of hours electricity is supplied to a consumers; breaking consumers into bandwidths, among others.
The tariff regime is strictly based on service availability and quantity of supply. Customers are required to pay based on hours of supply they enjoy. In a message to its consumers the Ikeja Electric, for instance, said that arising from the Multi Year Tariff Order (MYTO), the new rate is now N42.73 per KWH from a previous N22.30 per KWH. Ikeja Electric wrote:
“Dear Esteemed Customer, Please be inform of the newly approved Nigerian Electricity Regulatory Commission (NERC) Multi Year Tariff Order (MYTO) payable by customers which takes effect from September 1, 2020. As such your tariff charge has been reviewed and you are now being charged at N42.73 per KWH after 7.5 percent VAT deductions on every vend. Our former charge was N22.30 per KWH.”
This means an almost 100% increase.
The upward review became necessary due to the removal of subsidy in the Nigerian Electricity Supply Industry (NESI) market and the current economic realities. With the mounting pressure on government revenues and continuous push by international financial bodies like the World Bank and the International Monetary Fund (IMF) for Nigeria to end its subsidy regimes on all sectors, President Muhammadu Buhari, finally caved in and approved the review.
Before the increase, THISDAY exclusively reported that effecting the new tariff was one of the preconditions given by the World Bank for a $1.5 billion loan for Nigeria. The president eventually signed off on the new planned electricity prices , which, it was learnt, will be reviewed every quarter.
Of the $1.5billion World Bank loan to be approved for Nigeria, $750million had been earmarked for the power sector and ending the subsidy regime is one of the preconditions for approval of the loan, plus the removal of fuel subsidy which has already been achieved and unification of exchange rate by the Central Bank of Nigeria (CBN).
The New Tariff Plan Explained
The NERC called the new tariff plan a 'service-based tariff'. Reacting to the THISDAY report, NERC said the following about the new tariff:
The proposed serviced-based tariff review will only affect customers that live in areas where their Discos promise to provide them electricity for at least 12 hours.
The SBT will operate a progressive regime-the customers that receive the highest quality of service (12-24 hours per day) will pay the highest tariff.
Customers that receive under 12 hours of service per day will continue paying their current tariff.
NERC insisted that SBT was designed to protect the poor, noting that only the wealthy customers in the areas that receive over 12 hours service will experience a tariff increase.
It noted that the service-based tariff will relieve the government of paying electricity subsidy on the rich and allow it to divert scarce resources to more pressing sectors, including education and healthcare. Thus the SBT is only expected to affect less than the richest 25 per cent of the population living in the most prosperous areas of the country. The richest 10% of the population will cover as much as 50% of tariff increase.