Understanding the Rationale Behind the Increase in Electricity Tariffs by the Federal Government

The federal government through the Nigerian Electricity Regulatory Commission, NERC, has announced increase in electricity tariff.

The Federal Government has disclosed the reason behind the latest increment in electricity tariffs for some users.

Musiliu Oseni, vice chairman of the Nigeria Electricity Regulatory Commission (NERC), stated that the hike became imperative and inevitable because the generation companies (Gencos) couldn’t sustain their current operational costs with the previous tariffs.

Speaking during an interview on Channels TV’s Politics Today on Wednesday, Oseni stated that the Gencos were unable to pay for gas and maintain their machines.

On Wednesday, the commission approved the increase in electricity tariffs for customers under the Band A classification.

With the development, customers would pay N225 kilowatt per hour from the current N66.

But during the interview, Oseni said that if there was no upward review of tariffs, the market can be relatively liquid.

He also explained that the increment was in tandem with certain provisions of the electricity act which sought to protect the investments of some players in the power sector.

He said, “If you look at section 116 sub section 2A of the electricity act, it mandates the commission to ensure that the licenses operating efficiency are allowed to recover sufficient revenue for the capital invested and for the operational cost as well as having a return on the investments they have made.

“In that case, it means that the onus is on the commission to ensure that operators actually earn sufficient revenue that we incentivize further investments in order to ensure improvement in service delivery.

“What informed the decision apart from the provision of the act, in December 2023, there was an improvement in the quality of service down to January. From then on there was dearth in electricity availability. Lack of review of tariffs caused that.

“The Discos could not be mandated to forward what they had not been allowed to charge. For that the payment to the generation companies has significantly dipped which affected their ability to maintain their machines and to pay for gas. And gas is one of the two significant raw materials for electricity generation in Nigeria.

“At a point, it is clear that if nothing is done to ensure tariffs are reviewed, the market can be relatively liquid.”

The increment in tariffs is accompanied by efforts to mitigate the impact on vulnerable consumers through targeted interventions, such as subsidy programs and social safety nets. These measures aim to ensure that low-income households are not unduly burdened by the increase in electricity costs, thus promoting inclusivity and social equity.

In addition to protecting investments and fostering sectoral sustainability, the increment in electricity tariffs can also contribute to reducing reliance on government subsidies and improving fiscal discipline. By gradually phasing out subsidies and transitioning to cost-reflective tariffs, the government can free up resources for other critical priorities, such as healthcare, education, and infrastructure development.

The recent increment in electricity tariffs by the Federal Government is a strategic decision aimed at addressing the systemic challenges facing the power sector and unlocking its full potential. By aligning tariffs with the true cost of electricity and safeguarding investments, the government seeks to create a more sustainable and resilient power sector that can drive economic development and improve the quality of life for all Nigerians. While the road ahead may be challenging, with concerted efforts and collaboration, we can build a brighter and more electrified future for our nation.

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