The Nigerian Electricity Regulatory Commission (NERC) on April 3, 2024 raised electricity tariff for customers enjoying 20 hours power supply daily. Customers in this category are said to be under the Band A classification. The increase will see the customers paying N225 kilowatt per hour from the current N66, a development that has been heavily criticised by many Nigerians, considering the immediacy of the tariff hike and the current hardship in the land. NERC Commissioner for Planning Research and Strategy, Yusuf Ali, was on Channels Television’s Politics Today programme during the week and he provided perspectives to what informed the decision of the regulatory body.
I know you have heard how angry people are about this increase. What goes through your mind?
I think it’s unfortunate but also understandable the circumstances facing Nigerians. I think the current review is seen as part of reforms that are not so easy to accommodate now but I want to say that this tariff review is focused on only 15% of the customer base. The difficulty on the government is very clear; the cost of producing electricity is always going to be there, the only question you have to ask yourself at any point is who foot the bills. All around the world, three reviews in four years, considering the scale of the macroeconomic changes we’ve had in our own economy, doesn’t go anywhere near enough. So, for way of context before this review, we were operating a tariff that was determined in December 2022.
Now I’ll just choose one parameter that encapsulates the big issue that we’re facing; the issue of gas price – gas price for the power sector is indexed to the dollar. In December of 2022, when the tariff was set, the gas was set at $2.18 per MMBTU (one million British thermal units). That is about N930 for every unit of gas. As at today, when you consider the fact that gas price was slightly increased by 11% recently, now costing N3,500. Now we have a decision to make, if the thing cost this amount, as a commission, we’re in the middle of a very interesting triangle. We have consumers who are there to be protected, there’s the government who is aligned with the consumers to ensure that things are not too hard on them, but then we have the investors who are the people that put their money in.
The new tariff regime takes immediate effect, but is this supposed to be the procedure? I thought there is supposed to be a notice before the increase kick in.
Yes, it took immediate effect and I think that is consistent with the provisions of our business rules with regards to this type of review. Now there are three types of reviews that we do and each of the reviews has different procedures to how you go about them. We have what we call the minor reviews which is what we did this week. There are minor reviews which are just month-on-month. Those ones do not require any consultation with consumers. Then we have major reviews which are bound to happen once every five years. For major reviews, we are required to have stakeholders’ engagement to get input in determining the new tariff. Then we have what we call extraordinary review between a five-year period if there has been a significant change in circumstances. In this case, our licensees, the DisCos, have a right to appeal to us, so that happened July last year.
They wrote to us and said they want a new tariff because dollar has changed and so on and so forth. For a week in the whole of July of last year, we held rate case hearings which is in line with international best practices. We invited consumers to discuss the proposal by the DisCos.
The consumers are the ones on the spot right now. Whatever policy or laws that exist out there supposed to have a human face. The consumers should be given time to adjust to the new tariff but when you say ‘with immediate effect’, in this economy? That is very harsh on consumers.
When you check the order that we issued in January, we were transparent about cost-reflective tariff. The change that has happened this April is that the government has said the subsidy we are willing to pay, our appetite is reduced, so design a tariff regime with the distribution companies that would save us N1.14 trillion and it’s important to highlight that number because as you know very well, the federal budget for this year is N27 trillion. If you do N1.14trn of N27trn, that’s over 4%.
What’s the place of a human face in this whole matter considering the hardship in the land?
In addition to my work at NERC, I’m also a consumer and I have family. The reality is there is some pain that comes with adjustment but the reality also is that you are very familiar with the Nigerian landscape. So, for example, Nigeria is very unique in the sense that it’s probably one of the few countries that has the highest level of prepaid metering around the world.
Let me just quickly explain on the issue of prepaid meters. The issue is the bills for electricity consumed in April, for example, will only become mature for the discos in May and June, that’s when they will have to collect the money and pay the suppliers of electricity. The challenge is if you allow a notice period, customers will bulk up and sell at different rates. So, for example, if this will be effective by end of April, people that normally buy only 20 units for one month will go and borrow money to buy more units to cover them for April, May, June.
How do you monitor compliance of the DisCos? How is it measured?
In the simplest form, the service-based tariff is based on feeders, so a feeder is basically like 11 kv line that supplies many households. Each of those feeders have meters. Now the commission has mandated the distribution companies to install smart meters on these 11kv feeders, so what smart meters do is that they can be remotely read so every hour or in some cases 15 minutes, in some cases 30 minutes and in the worst case 1 hour, the meter would read its data to what is called a Meta Data Management System (MDMS). So, we can definitely see that if a feeder has a zero reading for any hour that means that there will be no supply for the customers on that feeder and that’s how we measure the compliance for service delivery.
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