Last week, the Nigerian Electricity Regulatory Commission, NERC, announced plans to raise electricity tariffs across the country, starting next year. The tariff order is in line with the commission’s minor review of indices that determine when and how prices of electricity can be reviewed upwards or downwards.
An analysis of the tariff increases from major commercial and industrial hubs in the country reveals it will rise by an average of 31% if the tariff orders are implemented next year. In some states, the tariff could rise up to 49%.
Lagos State: Nigeria’s commercial nerve centre is home to two of the largest power distribution companies – Eko Distribution Company, and Ikeja Electric Plc. Tariff for industrial manufacturers could rise by 26.3% for high consumption industrial customers residing in the Eko franchise area. Tariff for manufacturers in this area is currently N36/kwh and could rise to N45.48/kwh if it increases next year.
Hotels, Brewers and Commercial Banks, most of which are headquartered in the Eko area will also have to brace up for a 24% rise in their tariffs rising from N36/kwh to N44.72/kwh. Most of the banks quoted on the Nigerian Stock Exchange are in the Eko Area. Banks do not report electricity cost as a separate item on their financial statements.
In Ikeja, Nigeria’s largest electricity distribution company by revenue supplies power to most of the major manufacturing companies still on the grid. Industrials such as FMCGs, steelmakers and airlines reside will see their electricity tariffs rise by about 29% from N38.85/kwh to N50.13/kwh next year. Some of these companies are also quoted on the Nigerian Stock Exchange.
Up North, Down South: Kano State, the commercial nerve centre in the Nothern Part of the country is on track to record one of the highest tariffs increases of the 4 main commercial cities. Companies in Kano and neighbouring states could see their tariffs rise by as much as 49% next year.
In Nigeria’s oil-producing state – River State, most of the oil majors will have to grapple with about 27% increase in the rise of electricity tariffs.
Impact: The last time Nigeria raised electricity tariffs, the inflation rate was at single digits and rose to as high as 18%. Nigeria is yet to revert back to single-digit inflation rates and it took over 3 years to drop to under 12%. It is likely that these companies will pass on some of the rise in electricity tariff to their customers. However, to remain competitive, manufacturers may have to bear some of the cost taking a hit on their profits. Investors in these companies may have to be wary of the potential impact on returns.