Electricity customers on Band A feeders may face a potential tariff hike following the significant rise in the electricity tariff shortfall, commonly referred to as the subsidy.
Recent data shows that the subsidy paid by the Federal Government surged from N102.30 billion in May to N181.63 billion in September.
According to The PUNCH, in April, the Nigerian Electricity Regulatory Commission removed subsidies for Band A customers, who receive at least 20 hours of electricity daily, leading to a tariff increase to N225 per kilowatt-hour. This move was met with backlash from labour unions and other sectors, as electricity bills tripled.
Although the subsidy dipped to N102.30 billion in May, resulting in a tariff reduction to N206.80/kWh, it quickly climbed again, reaching N158 billion by June. By July, tariffs increased to N209/kWh as the subsidy continued to rise, hitting N163.87 billion in July, N173.88 billion in August, and finally N181.63 billion in September.
This escalation has prompted speculation about a possible further tariff hike under the October Multi-Year Tariff Order unless power generation costs decline.
One of the main contributors to the rising subsidy is Nigeria’s ongoing foreign exchange crisis. NERC reported that the exchange rate stood at N1,494.1 to the dollar in July, climbing to N1,601.5 by September. Alongside inflation, these factors heavily influence power production costs.
In September, NERC set the naira-to-dollar exchange rate at N1,601.50, while the inflation rate was 33.40% as of July 2024.
These projections were based on data from the National Bureau of Statistics and were applied to calculate cost-reflective tariffs.
Despite the increased cost of power generation, the Federal Government has not yet authorized another tariff hike, likely due to the economic challenges facing the country, including the recent spike in fuel prices.
While the Abuja Electricity Distribution Company recorded a consistent power delivery of 611 megawatt-hours per hour from April through September, generation costs fluctuated from N103.9/kWh in April to N87.33/kWh in May and rising again to N113.69/kWh in September.
Transmission and administrative costs also saw increases, reaching N10.4/kWh by September.
However, some electricity distribution companies (Discos) have expressed dissatisfaction with the current tariffs. Despite the rising costs, NERC capped allowed tariffs at N117.31/kWh for July, August, and September, which has led to complaints from Discos operating at a loss.
Some are now refusing to purchase electricity allocated to them from the grid, calling for the removal of subsidies across all customer bands to stabilize the market.
Minister of Power, Adebayo Adelabu, recently criticized Discos for rejecting power, which has forced generation companies to reduce output. He noted that despite recent efforts to increase generation to over 5,000 megawatts, 1,400MW had to be scaled back due to the Discos’ refusal to take the supply.
Adelabu called on Discos to absorb more energy to prevent further disruptions in the power grid and to support the government’s target of increasing generation to 6,000MW by year-end.
