Federal Government May Consider Power Distribution Companies' Request for Tariff Review

There are indications that the Federal Government may consider the request by power distribution companies (Discos) to review their tariff, as its spending on electricity subsidy has risen to N2.8tn. A new report by the Nigerian Electricity Regulatory Commission (NERC) revealed that the past hikes in electricity tariffs by Discos saved the government from paying additional N1tn in subsidy to power firms annually.

The NERC report titled, ”Overview of the Nigeria Electricity Supply Industry,” provided an update on the country’s country’s tariff review journey and stated that without the tariff reviews that commenced in 2019, subsidies payable by the government would have grown to about N1tn per annum by 2023. The Service-Based Tariff scheme was instrumental in the transition to cost-reflective levels.

Subsidy Reduction

The NERC report showed that the subsidy paid by the Federal Government between 2015 and 2022 rose to N2.8tn in December last year. However, the subsidy was reduced from N528bn in 2019 to N144bn in 2022. Subsidy in 2023 year-to-date (January to April 2023) stood at N57bn. The Service-Based Tariff scheme helped reduce the amount the government spent on power subsidies.

Tariff Review

The 11 power distribution companies in Nigeria had applied for the review of electricity tariffs to incorporate changes in Nigeria’sNigeria’s macroeconomic parameters. The reasons for the rate review were premised on factors affecting the quality of service, operations, and sustainability of the companies.

However, some power distribution companies have announced a hike in tariff, projected to take effect from July 1, 2023. The Discos, however, backtracked the next day after widespread criticisms, as they stated that the Nigerian Electricity Regulatory Commission had yet to approve the hike.

Consumers’ Opposition

Power consumers said they opposed any move by the government or Discos to hike tariffs, stressing that subsidy on electricity should remain. Nigerians have not been able to cope with the fuel subsidy removal that was done recently, and the government is talking about a power tariff review. Tariff review should be based on the service delivered to consumers, but the Discos were neither delivering nor implementing capital projects as promised.

The Federal Government may consider the Discos’ request for tariff review, but the NERC would ask the power firms to state further why they were bent on having a hike in tariff during the proposed meeting. Energy economists stated that it was high time that the Federal Government stopped all forms of subsidy on energy, and electricity should not be treated like an elite product, as it serves as a commodity for everyone in any country.

Federal Government May Consider Power Distribution Companies’ Request for Tariff Review

Subsidy Reduction

Tariff Review

Consumers’ Opposition

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Post written by: Shallom Opara

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