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Business News

Why NERC is considering increasing electricity tariffs

The Nigerian Electricity Regulatory Commission (NERC) in a document uploaded on its website has given reasons for the review in electricity tariffs.

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DISCOS, NERC, electricity tariffs, hotels, bars,

The Nigerian Electricity Regulatory Commission (NERC) has provided further insight into the reasons behind the recent plans to increase electricity tariffs in 2010.

An information signed by the General Manager of the Public Affairs of NERC, Dr Usman Abba Arabi and published on its website, disclosed that while the Commission has not approved other tariffs plan yet, the tariffs reported by some sections of the media are only a review of the 2015 tariff regime to account for changes in macroeconomic indices between 2016 and 2018.

New tariffs explained: NERC noted that the minor review implemented was a retrospective adjustment to reflect some economic fundamentals. According to the documents uploaded on the website of NERC, the new tariffs are in consonance with the changes in relevant macroeconomic variables, and the available generation capacity in updating the operating 2015 Multi-Year Tariff Order (MYTO). Some major reasons for tariff review were highlighted.

[READ MORE: Nigeria’s foreign reserves inch towards six month high]

 

NERC, electricity tariff

Macroeconomic concerns: According to NERC, movement in inflation, exchange rate, gas price, and capital expenditure allowance were all contributory factors.

  • On inflation, NERC stated that the actual yearly average inflation rate of 15.6%, 16.5% and 12.1% for the years 2016, 2017 and 2018 were utilized for the review based on the data obtained from the National Bureau of Statistics (NBS).
  • Explaining the exchange rate factor, NERC disclosed that in line with the provisions of the Regulation on Rate Review, CBN official exchange rates were used in the review. The average NGN/USD exchange rates of N255.90, N308.80 and N309.14 were used for the years 2016, 2017 and 2018.
  • Also, NERC noted that the Commission had maintained a gas price of US$2.50/MMBTU and gas transportation cost of US$0.80/MMBTU for the review. However, other generating companies had contracted different gas prices outside the regulated rates as provided in their respective individual Gas Sales Agreements.

Revenue Shortfalls: NERC disclosed that the minor review came as a result of revenue shortfall that might have arisen due to the difference between tariffs approved by the regulator and actual end-user tariffs. The breakdown of revenue shortfall included in NERC reports shows that the entire eleven Distribution Companies (DIsCos) in Nigeria recorded revenue shortfall of N1.05 trillion between 2015 and 2018.

[READ MORE: FG approves N600 billion disbursement for power sector]

According to NERC, under the Power Sector Recovery Plan (“PSRP”) approved by the Federal Government, all accrued liabilities in DisCos’ financial records arising from tariff shortfalls shall be transferred off the balance sheet and fully settled under the financing plan of the PSRP initiative.

MDA metering: Included in the NERC report is a new order directing all the ministries and agencies of government (MDAs) to be metered by DisCos. A further review of the report suggests that the revenue shortfall experienced by the DisCos might be traceable to the refusal of the MDAs to pay their bills, and NERC appears to have fully empowered DisCos to do the needful in enforcing revenue collection.

Electricity tariff

The statement released by NERC reads: “This Order reiterates that the responsibility and initiative for revenue collections from all customers including Ministries, Departments and Agencies (“MDAs”) of States and Federal Government rests with the DisCos.

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“Accordingly, this Order makes it mandatory for all DisCos to meter all MDAs with appropriate meters of their choice within 60 days from the effective date of this Order. All DisCos reserve the right to disconnect any MDAs defaulting in the payment for electricity in line with the Regulation on Connection and Disconnection Procedures for Electricity Services.”

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Not yet a hike? While electricity consumers will still have to adjust to the reviewed tariffs which will begin by 2020, NERC stated that a new tariff is in view, and it will be done through wide consultation of stakeholders before the final decision is reached.

[READ MORE: ECOWAS’ new currency will be called “Eco” and could replace the Naira]

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Economy & Politics

CBN extends Covid-19 forbearance for intervention loans by another 12 months

CBN will continue to charge an interest rate of 5% for its intervention loans for another 1 year.

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New CBN guidelines ban MMOs, PSPs, Operators from receiving diaspora remittances

The Central Bank of Nigeria has announced an extension of its regulatory forbearance for the restructuring of its intervention facilities by another 12 months.

In a circular signed by Dr. Kevin Amugo, the Director of Financial Policy and Regulatory. the apex bank said it will continue to charge its borrowers an interest rate of 5% per annum as against the 9% originally offered. The CBN had on March 20th reduced the interest rates on its intervention loans from 9% to 5% as part of its response to the economic crunch brought on by Covid-19 induced lockdowns.

The CBN also offered to rollover moratorium granted on all principal payments on a case by case basis. All credit facilities had been granted a one-year moratorium starting from march 1, 2020 when the pandemic first gripped Nigeria.

See excerpt from Circular

“The Central Bank of Nigeria reduced the interest rates on the CBN intervention facilities from 9% to 5% per annum for one-year effective March 1, 2020, as part of measures to mitigate the negative impact of COVID-19 Pandemic on the Nigerian economy.”

Credit facilities, availed through participating banks and OFIs, were also granted a one-year moratorium on all principal payments with effect from March 1, 2020.

Following the expiration of the above timelines, the CBN hereby approves as follows:
1) The extension by another twelve (12) months to February 28, 2022 of the discounted interest rate for the CBN intervention facilities;

2) The roll-over of the moratorium on the above facilities shall be considered on a case by case basis.

What this means

Companies who secured intervention funds from the CBN or through any of its on-lending banks will continue to service the loans at an interest rate of 5% per annum instead of 9%.

  • They can also get another year of not needing to pay back the principal sum collection. However, they will need to apply.
  • Whilst this move helps the small businesses continue to manage their cash flow, it means the CBN will record a reduction in its income extended under such facility.
  • Regulatory forbearance is a widely adopted concept during an economic crunch and it is meant to help stimulate businesses. These pronouncements if implemented will only affect those who borrow from the CBN or BOI but those who do not will miss out.
  • Download the circular here.

 

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Energy

LNG boss tasks FG to begin the monetization of Nigeria’s gas

Mr Attah has urged the FG to take the gas sector more seriously as the future of Nigeria’s energy lies with it.

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The MD and CEO of Nigeria LNG Limited Mr. Tony Attah has tasked the Federal Government to begin the revamping and monetization of the Gas sector in Nigeria.

He made this statement while making his presentation at the 2nd virtual Nigerian Gas Association (NGA) Industry Multilogues, with the theme: “Powering Forward, Enabling Nigeria’s Industrialization via Gas.”

Mr. Tony Attah drew the attention of the audience to the hidden treasure in the Nigerian Gas industry which he believes is not getting enough attention from the government.

On the future of gas as an alternative energy source, Mr. Attah stated that the developed world is already keying into gas as an alternative to crude oil. Gas has proven to be a cleaner and more sustainable alternative.

He exclaimed that Nigeria is very rich in gas and yet poor in energy. Nigeria is the 9th country with the largest gas reserves in the world but makes very little use of it.

Mr. Attah went further to paint a clear picture of the promise of investing in gas using the success achieved by Qatar. Qatar is currently the largest LNG exporter in the world.

We just touched on a quick case study of Qatar. Someone mentioned Qatar already from a poor fishing country to a gas giant and it took just 10 years, which is why we, as Nigeria LNG, firmly believe in the conversation and the narrative about the declaration of the decade of gas.

“We believe it is possible. If you look at Qatar from 1995, when they really went into gas development, we were just two years behind Qatar. So, Qatar’s first LNG was in 1997.

Nigeria’s first LNG was in 1999, just two years behind. But then, within 10 years, because of the deliberateness of the government and focus on gas, they have gone to 77 million tonnes and we are at best, 22 million tonnes,” Attah said.

Mr. Attah stressed further the importance of the gas sector in Nigeria’s future. He recalled that the Nigerian Government declared 2021-2030 as the decade of gas. He pleaded with the government to take the sector more seriously as the future of Nigeria’s energy lies with it.

Gas is the future. That future is now, and just as the Minister of State has made us to realize, gas is food in fertilizer. Gas is transport as you saw in the Auto gas project that was declared.

Gas is life, as a matter of fact, for cooking, for heating, for existence. Gas is development in manufacturing, gas is power. Gas is everything. “We think it’s time for gas. It’s time for Nigeria to diversify and that is why we fully support the decade of gas,” he said.

What you should know

  • Early last year, the director of the Department of Petroleum Resources (DPR) Mr Sarki Auwalu confirmed that Nigeria’s proven gas reserve stood at 203.16 trillion cubic feet.
  • Nigeria has the 9th largest gas reserves in the world. It is also the 6th largest exporter of gas.
  • The Federal Government declared the year 2021–2030 as the “Year of the Gas“. It pledged to finally kick start the development and commercialization of Nigeria’s huge gas reserves.

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