By Ade Adesokan
The Nigerian Electricity Regulatory Commission has ordered the downward review of electricity tariff for Band A customers to N206.80 per kilowatt-hour from the N225/kWh. In a statement on Monday, May 6, the electricity market operator said the development was due to the appreciation of the naira in the official exchange window.
“Effective from May 6, 2024, Band A end-user tariffs have been reviewed to N206.8/ kWh under MYTO 2024. This is largely driven by the relative appreciation of the naira in the official foreign exchange window,” the statement read in part.
To this effect, electricity distribution companies have commenced a reduction in tariffs for Band A customers. NERC stated that after considering the changes in macroeconomic parameters in April 2024, it was appropriate to reduce the end-user tariffs for Band A customers from N225/kWh to N206.8/kWh. According to the commission, this decision reflects its commitment to providing a balanced and effective regulatory regime for the Nigerian electricity supply industry.
“The reduction aims to ensure that tariffs are fair and reflective of current economic conditions, ultimately benefiting consumers in Band A”, it stated. Expectedly, this decision has been implemented by various Discos across the country, however ensuring that the tariffs for Band B, C, D, and E customers remain unaffected. Consumers in Band A will experience a reduction in their electricity bills, which can alleviate some of the financial pressure, especially given the economic challenges and high inflation rates. The review also brings more transparency to the tariff-setting process, as it reflects the changes in macroeconomic parameters like the foreign exchange rates.
With the tariffs being adjusted to reflect actual costs, there is potential for improved electricity supply and services as Discos can better manage their resources. By responding to economic changes and adjusting tariffs accordingly, NERC can build trust with consumers, showing that tariffs are not just arbitrarily set but are responsive to broader economic conditions. This move may encourage Discos to become more efficient and cost-effective in their operations to maintain profitability under the new tariff regime.
However, it’s important to note that while the immediate impact on consumers is positive in terms of reduced costs, the long-term effects will depend on how well the Discos can manage their operations within the new tariff regime and how the government continues to address the broader challenges in the electricity sector. While this is a positive development, there are still broader issues to be addressed in the sector, such as ensuring consistent power supply, improving infrastructure and managing costs effectively for all consumer bands.
The government’s commitment to providing a balanced and effective regulatory regime is crucial for the ongoing reform and sustainability of the Nigerian electricity supply industry. It’s also important to note that the tariffs for Bands B, C, D, and E remain unchanged, which might contribute to the sentiment that the journey to a fully reformed electricity sector is still far ahead.
NERC’s downward review of this band and others in the near future may be likened to moving in a circle that it’s not likely to lead to any significant progress or change; hence the need for the Federal Government’s bundling of the commission to break this cycle and bring about meaningful reforms. In fact, the current structure and operations of NERC may be hindering progress, and that a more comprehensive approach is required to tackle the complex challenges facing the electricity sector. Specifically, the government should consider unbundling NERC because unbundling NERC could lead to a more focused and efficient regulatory body, allowing for better oversight and management of the electricity sector.
NERC currently has both regulatory and operational responsibilities which can create conflicts of interest. Unbundling would separate these functions, ensuring a more impartial regulator. Unbundling could foster a more competitive electricity market, encouraging innovation and investment, and leading to better services and prices for consumers. It would define clearer roles and responsibilities, reducing confusion and overlapping functions within the sector.
Unbundling is a global trend in electricity sector regulation, aligning with international best practices and promoting Nigeria’s economic growth and could attract more private sector investment, as a more streamlined and efficient regulatory environment would be created. Separating NERC’s functions would promote transparency and accountability, reducing the risk of regulatory capture and improving overall sector governance.
A focused regulatory body would prioritise consumer interests, ensuring better protection and advocacy for electricity consumers. Unbundling could lead to a more dynamic and growing electricity sector, driving economic development and job creation. Embracing international best practices in regulatory reform would enhance Nigeria’s reputation as a progressive and investor-friendly nation.
Meanwhile, it’s worthy of note here that the strategies to close the metering gaps for customers on post-paid accounts in the sector have been a mixed bag. No doubt, the government’s initiative to procure meters and convert all six million customers to digital technology and smart meters is a step in the right direction. The commitment to patronise local meter manufacturers is a great way to boost local content development and foster growth in the sector. Also, decentralising transmission and bringing it closer to the markets where there is electricity demand is a good strategy to increase efficiency.
However, the implementation of these strategies has been slow, leaving many customers still receiving high estimated bills to date. The government’s metering initiative has been plagued by inadequate meter supply, leading to a significant metering gap. The cost of meters remains high, making it difficult for many customers to afford, especially in a country with a high poverty rate and galloping inflation and exchange rates. The estimated billing system lacks transparency, leading to customers being overbilled and frustrated. The government has not done enough to educate customers about the new metering system and how it works.
Despite all these weaknesses, the government can leverage private sector investment to bridge the metering gap and improve the efficiency of the electricity sector. The government can explore new technologies like smart grids and advanced metering infrastructure to improve the efficiency and accuracy of the metering system. The government can engage with customers more effectively to educate them about the new metering system and address their concerns.
Some identifiable threats include Discos resisting the government’s efforts to close the metering gap, as it may affect their revenue. Also, the government’s strategies may be hindered by funding constraints, which can slow down the implementation of the metering initiative. The government’s efforts may be threatened by security challenges in some parts of the country, which can make it difficult to implement the metering initiative effectively.
Overall, the Federal Government’s strategies to close the metering gap for customers on post-paid accounts in Nigeria have been slow and inadequate. While there are opportunities for improvement, the government must address the weaknesses and threats to ensure successful implementation by unbundling the NERC. Through this, the government can create a more efficient, competitive, and consumer-focused electricity sector, aligning with global standards and promoting economic growth.
•Adesokan is a public affairs commentator
