The Nigerian Electricity Regulatory Commission (NERC) plays a critical role in overseeing electricity tariffs in the nation. NERC conducts periodic assessments and modifications of tariff rates, taking into account a wide range of factors such as inflation levels, exchange rates, gas prices, the US inflation rate, available power generation capacity, adjustments in Capital Expenditure (CAPEX), and the operational expenses associated with the power sector.
A significant milestone was reached with the introduction of the Multi-Year Tariff Order (MYTO), designed to ensure that electricity tariffs in Nigeria accurately reflect the costs of generating and distributing electricity. This system incrementally raises tariff rates over time, aligning them with the actual expenses incurred in the electricity production and distribution process.
Historically, the average tariff per kilowatt-hour has evolved over the years. Up until 2020, there had been a smooth rise in electricity tariffs with people not really taking note of since it was still in a good range, but in 2022, the sudden increase to about 60 Naira per kwh brought a sudden concern of the end users with NERC explaining that the range of factors used in setting the price has increased, while the MYTO for 2022 raised it to N64 across different customer categories.
The foreign exchange rate used in tariff calculations has seen significant changes, with N198.97/$ in 2015, N383.80/$ in 2020, and N441.78/$ in 2022. Inflation rates have followed a similar trajectory, with 8.3% in 2015, 12% in 2020, and 16.97% in 2022. Currently, the exchange rate is N778/$ and Nigeria’s annual inflation rate climbed to 25.8% in August 2023, from 24.08% in July marking the highest rate since September 2005, reflecting the impact of the removal of fuel subsidies, the devaluation of the official exchange rate and security issues in food-producing regions.
The administration of President Bola Ahmed Tinubu is poised to implement significant changes to electricity tariffs in Nigeria, with an anticipated increase of up to 40% in 2023. In a pivotal move, President Tinubu signed the Electricity Bill into law in July 2022.
This legislative action effectively repealed the Electricity and Power Sector Reform Act of 2005, ushering in the Electricity Act of 2023. The new act consolidates all regulatory measures governing the electricity supply industry, establishing a comprehensive institutional framework for guiding Nigeria’s electricity sector post-privatization.
The primary objective is to foster private sector investment while dismantling monopolies in electricity generation, transmission, and distribution at the national level. This shift empowers states, companies, and individuals to participate actively in the generation, transmission, and distribution of electricity.
With the removal of fuel subsidies and the ongoing increase in foreign exchange rates and inflation rates, concerns are already mounting among ordinary Nigerians regarding the impact on household incomes, expenditures, and the cost of doing business.
Additionally, manufacturing companies are expressing their apprehension about the worsening economic conditions that may inevitably arise from this policy shift. This concern persists even as individuals and businesses continue to grapple with the challenge of paying for electricity that remains largely unavailable in many areas.
In summary, the evolving terrain of electricity tariffs in Nigeria signifies a deliberate endeavor to drive economic growth, promote private sector involvement, and establish tariffs that accurately mirror costs while addressing the nation’s energy requirements.
However, it’s crucial to acknowledge that from the perspective of end-users, this transformation significantly impacts their immediate needs, and there are dissenting voices who do not endorse this new system.
