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Home Opinions Op-Eds

Government to give consumers discounts on tariffs

CSL Stockbrokers by CSL Stockbrokers
October 14, 2020
in Op-Eds
The Nigerian Electricity Regulatory Commission (NERC), National electricity grid collapses again, as NUEE suspends strike action , FG to increase electricity tariffs in order to improve power supply, Power: Liquidity crisis-same old story in 2020?, GenCos urges NBET to pay up N1 trillion debt, Electricity Tariff: FG, electricity stakeholders to work on equitable rate , Power: NERC applies "brakes" on hike in tariffs, NERC to sanction 7 DisCos over uncapped estimated billing
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According to a report, following threats of protests by the Nigerian Labour Union, the Federal Government after suspending the recently effected tariff increase for two weeks has agreed to give Nigerian electricity consumers a discount on their bills for three months ending 31 December, to provide relief for those that have been affected by covid-19. This agreement is expected to be formalized at a final meeting on Sunday with the Presidency. The total discounts will result in the federal government paying as much as N5bn monthly in subsidy which is to be funded by a VAT rebate to be offered to Discos till the end of the year.

READ: How to access CBN’s N250 billion intervention fund for gas sector

Based on the agreed terms, electricity customers across Bands A-C, who saw a tariff increase will enjoy different levels of discount. Band A customers will get a 10%(N2.49/kwh) reduction in tariff increase. Band B consumers will get a 10.5% (N2.24kwh) reduction in tariff while Band C consumers will get a 31% reduction in tariff increase
amounting to N5.46 per kWh. Band D & E customers who were not affected by the recent increase will get no discount. The agreement reached also provides that 6million meters funded by the Central Bank of Nigeria (CBN) will be made available through the National Mass Metering Programme (NMMP).

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READ: DisCos ask FG to reduce cost of gas in power generation

Early September, the Nigerian Electricity Regulatory Commission (NERC) and the Distribution Companies (Discos) finally effected a hike in the unit price of electricity after many years of going back and forth. The hike in electricity tariff though considered a freemarket reform that should keep the power sector in tune with market realities and drive efficiency, was considered ill-timed by many especially in the face of hikes in fuel price and
value added tax. Furthermore, income levels in general, have failed to keep pace with the steep rise in living costs resulting from the accelerated cost-push inflation over recent years. Loss of jobs induced by the pandemic has also left many consumers highly improverished as the pandemic has led to many businesses cutting workforce or implementing steep salary cuts.

READ: Customers to pay for metering through cost of tariff – NERC

A major challenge in Nigeria’s electricity value chain remains liquidity and the most potent factor driving the liquidity squeeze in the sector stems from the non-cost reflective tariffs charged by the Discos. This has remained a major clog in the wheel for the Discos, making most of them technically insolvent. Another major problem driving inefficiency within the power sector value chain is ineffective metering. While some consumers avoid paying for
power consumed through meter bypass, some other consumers are made to pay for what they haven’t consumed through estimated billing by discos.

READ: FG announce extension of suspension of new electricity tariff by 1 week

While we are uncertain about how much respite the proposed discounts will bring to consumers that have been improverished by the effects of the pandemic, if the agreement to provide 6million meters is kept, then we can say that the labour negotiations were not futile. In our view, without cost-reflective tariffs, it will be impossible to make any meaningful progress in improving power supply and as such consumers will at some point have to come to terms with an increase in tariffs.

READ: Despite billions on agriculture, food inflation up by 108% since 2015


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange


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Tags: NERCNigeria NewsNigerian Electricity Regulatory CommissionNigerian Labour Union
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