- The monthly electricity subsidy increased to N181.63 billion in September
- The increase indicates that another tariff hike is in the horizon for electricity customers
- The possible tariff hike comes months after an increase to N209.50/kWh in July
There are indications that another tariff hike is in the offing as the monthly electricity tariff subsidy to be paid by the Federal Government increased to N181.63 billion in September from N102.30 billion in May.
The increase in the monthly electricity subsidy to N163.87 billion in July, N173.88 billion in August and N181.63 billion in September, according to the Nigerian Electricity Regulatory Commission (NERC), raises speculations over a possible tariff hike in the October Multi-Year Tariff Order (MYTO) unless the cost of power generation drops.
The fluctuation in the foreign exchange market is largely responsible for the increase in the electricity subsidy. The NERC also noted that the forex rate and inflation are factors that determine the cost of power production.
The regulator had set the dollar/naira exchange rate at N1,494.1 in July, 1,564.3 in August and N1601.5 in September.
In the MYTO order sent to power distribution companies (DisCos) for September, the NERC said further to Section 23 of the MYTO-2024, the supplementary orders are to reflect the changes in the pass-through indices outside the control of licensees including inflation rates, naira/dollar exchange rate, available generation capacity and gas price for the determination of cost-reflective tariffs.
Following a reduction in the inflation rate to 33.40 per cent in July 2024 from 34.19 per cent recorded in June 2024, the Nigerian inflation rate projection for 2024 was revised while the US inflation rate of 2.90 per cent for July 2024 was applied to revise the US Inflation rate projection for 2024.
The NERC still maintains the benchmark gas-to-power price of $2.42/MMBTU as of September based on the established benchmark price of gas-to-power by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) in line with Section 167 of the Petroleum Industry Act 2021.
The cost of power generation is also being impacted by contracted gas supply and transportation prices outside the domestic gas delivery obligation quantities based on effective gas sale agreements approved by the commission.
Electricity subsidy was removed in April due to forex crisis
The NERC announced the removal of subsidy for electricity feeders categorised as Band A in April 2024 with the subsidy at N140.7 billion.
Following the subsidy removal, customers in the Band A category, who make up 15 per cent of the population of electricity customers in Nigeria and consume 40 per cent of electricity at a minimum of 20 hours of electricity daily, were made to pay N225 per kilowatt hour (kWh), a 300 per cent increase from the previous N68/kWh.
Musiliu Oseni, Vice Chairman of NERC, said the decision was to ensure sustainable energy distribution and reduce subsidies for the 2024 fiscal year by N1.14 trillion in line with the Federal Government’s subsidy realignment.
He said, “With the newly approved tariffs, subsidies for the 2024 fiscal year are expected to reduce by about N1.14 trillion in furtherance of the Federal Government’s realignment of the subsidy regime.
“The Commission has established a robust monitoring framework leveraging technology to ensure that the public has visibility of the service covenant with their service providers.”
The tariff was later reduced to N206.80/kWh when the subsidy figure declined to N102.30 billion in May following public outcry from customers, labour unions and manufacturers.
However, when the subsidy figure increased to N158 billion in June, the tariff for Band A customers increased by N2.70/kWh to N209.50/kWh in July.
The DisCos said the adjustment was necessitated by several key economic indices, including fluctuations in the exchange rate, the current inflation rate, available generation capacity and the cost of gas.
A statement by the acting Managing Director of the Ibadan Electricity Distribution Company (IBEDC), Engr Francis Agoha, read, “These factors have significantly impacted operational costs and the new tariff will mitigate these financial pressures while continuing to deliver high-quality electricity services.
“We understand that any change in tariffs can be a concern for our customers and we assure you that this adjustment is necessary to maintain and improve the quality of our services. Our goal is to ensure that you receive the best possible value for your money.”
Nigeria to achieve 6,000MW of power by year-end, 30GW by 2030 – Power Minister
Meanwhile, TheRadar reported that the Minister of Power, Adebayo Adelabu, says Nigeria aims to achieve 6,000 megawatts (MW) of power by year-end through a combination of hydroelectric and gas-fired power plants and targets to generate, transmit and distribute 30 gigawatts (GW) by 2030, 30 per cent of which will be renewable energy.
Adelabu also said power generation under President Bola Tinubu’s administration increased from four MW to 5,170 MW within a year of being in office.
