There have been numerous reactions to the recent increase in electricity tariffs by the National Electricity Regulatory Commission (NERC). Many have argued against the increase, while few have spoken in its favour. The stratification of the consumers into five tariff bands remains a topic that many Nigerians still do not fully understand. Why should some have a right to 20+ hours of electricity supply and some a paltry 4+ hours of supply? I charge the Distribution Companies (DISCOs) and the NERC to conduct more expose/education of the consumers on this initiative. In this piece, I wish to elucidate some pros and cons of the electricity tariff increase.
Pros
- Increased Liquidity in the Sector: The electricity supply sector in Nigeria is in dire need of funding due to the age of the infrastructure that makes up the electricity supply network. With over 12 Gigawatts (GW) installed base, only about 5 GW can be wheeled without damaging the system. Even though band A customers across all the discos make up 15% of the total customer base, revenue from band A customers make up about 40% of the total revenue of the distribution companies. Using these numbers, I ran a mathematical model which showed that the 231% increase in the electricity tariff for just the band A customers would lead to a 52% increase in the monthly collection/revenue of each DISCO. This substantial leap should serve as an enabler for the DISCOs to reinforce the old infrastructure that they still run in their networks.
- Encourage Investment in the Power Generation Sector: There has been no major investment in the power generation sector since the 2013 electricity reform. This lack of investment stems from the poor financial performance of the sector. The deficient performance affects various entities across the electricity value chain, from the consumers to the generation companies and the gas suppliers. Generation companies have long complained about low remittances of their invoices by the Nigerian Bulk Electricity Trading (NBET). NBET, in turn, attributes this to low remittances from the DISCOs, while the DISCOs blame it on energy theft and Aggregate Technical, Commercial, and Collection (ATC&C) losses. With the increased tariff, remittances to all the stakeholders are expected to rise, thereby encouraging more investments in the sector. This increase in liquidity will boost investment appetite for the sector. Nigeria needs investment in this sector, like what occurred in the telecommunication sector in 20xx.
- Energy Management Culture among Nigerians: There remains a significant need for improved energy discipline among Nigerians. Responsible electricity usage, aimed at reducing expenses, involves awareness of power conservation by turning off unused appliances and lights to which many Nigerians are beginning to adapt to. While the Minister of Power’s suggestion to turn off deep freezers may not apply universally, many households habitually leave numerous appliances running unnecessarily. The recent tariff increase has heightened awareness of power consumption among Nigerians, potentially fostering improved energy management practices. This shift may facilitate the redistribution of excess kilowatt-hours to areas experiencing shortages.
- Reduced Government Expenditure on Electricity Tariffs Subsidy: According to the Minister of Information’s press briefing, the tariff increase for band A customers alone is projected to save the federal government of Nigeria approximately One trillion Naira. This significant sum could be allocated towards infrastructure development within the electricity sector and other critical areas, benefiting all citizens. With prudent fiscal management, One trillion Naira (approximately 0.9 billion dollars using today’s exchange rate) could greatly enhance the reinforcement of the transmission network, which falls under the government’s purview via the Transmission Company of Nigeria (TCN). Responsible allocation of these funds underscores the government’s commitment to improving infrastructure nationwide. 5. Increased Awareness of the Electricity Sector: With discussions surrounding the tariff hike dominating public discourse recently, more individuals are becoming informed about the several factors influencing electricity pricing, distribution, and consumption. This increased awareness could potentially lead to greater civic engagement and advocacy for improved transparency, accountability, and efficiency within the electricity sector. Many consumers, across all the bands, have become mindful of their electricity consumption. This will further drive an energy management culture among Nigerians.
Cons
- Socioeconomic Hardship for Ordinary Nigerians: Several economic policies implemented by the government since May 29, 2023, have compounded socioeconomic challenges for many Nigerians. The recent tariff increase further exacerbates these hardships as citizens grapple with high inflation and foreign exchange rates.
- Rise in Energy Theft Cases: It is commonly said that individuals become inventive in difficult times. As many Nigerians feel the pain, they resort to creative ways to circumvent challenges. The increase in tariffs may lead to a surge in energy theft incidents. While some may argue that the hike affects only the upper social class, it’s noteworthy that a significant portion of energy theft occurs in upscale areas occupied by this demographic.
- Strain on Small Businesses: The tariff hike could impose additional financial strain on small businesses already grappling with operational costs. This could potentially lead to reduced profitability, job losses, or even closures, further impacting the economy. 4. Disruption in Household Budgets: For many households, the increase in electricity tariffs will disrupt budgetary allocations, forcing families to reallocate funds from other essential expenses such as food, education, or healthcare. This could result in heightened financial stress and strain on household finances, particularly for low-income families.
remark
While the increase offers potential benefits, it also poses challenges as encapsulated above. Moving forward, it is imperative for policymakers and stakeholders in the energy sector to carefully consider the trade-offs involved in electricity tariff adjustments. Mitigation strategies should be developed to address the adverse effects on vulnerable populations while maximizing the positive outcomes for economic growth, infrastructure development, and energy sustainability. Additionally, efforts to improve transparency, accountability, and efficiency within the electricity sector are essential to build public trust and ensure equitable distribution of the benefits derived from tariff adjustments. Consumers must imbibe a culture of energy management that helps to limit their energy expenditure and conserve the energy for general use.