In this post, we will review the impact of the 45% electricity tariff increase on Nigerian economy. A few days ago, we profiled the new MYTO II ten year (2016-2024) electric tariff plans in Nigeria.
The Electric Power Sector Reform Act (2005) authorizes the NERC to provide for the licensing and regulation of the Generation, transmission, distribution and supply of electricity, to enforce such matters as performance review, consumer rights and tariffs determination based on market variables such as gas and its transportation cost, foreign exchange rate and inflation rate.
According to NERC, the electricity tariff was increased to improve the sector, make it more attractive to the intending investors, protecting these investments and assuring constant power supply for consumers. This is an effort towards achieving the Vision 2020 of the Federal Republic of Nigeria.
This article highlights the impacts of the increased electric tariff to consumers and investors alike.
Positive Impacts of Electricity Tariff Increase on Nigerian Economy
- Enhancement in service delivery: the power sector suffers from a cascade of inadequate funding Government has provided part of expenditures in generation, transmission and distribution of power supply in Nigeria at a subsidized rate for years. After the deregulation of the power sector, these subsidies do not seem to have resolved these problems. NERCs increase in tariff structure would encourage vast investments in generation and distributions especially by Multinational, thus improving service delivery.
- Improvement in tariff collection: If Discos can ensure that every consumer including households, enterprises who paid for meters under the Cash Advance Payment Metering Initiative (CAPMI) in Nigeria is provided with a standardized metered billing, this will put an end to the practice of random billing, which estimates the power consumption payments.
- Customers’ satisfaction: This tariff income should be channeled towards improving aging and faulty power generation and distribution equipment and capacity, more people especially in rural areas will progressively have access to the electricity grid system, more meters will be deployed and the need for alternative power generation would be gradually reduced.
- Elimination of fixed charges: The fixed charge is an amount of the electricity tariff charged as a stable monthly sum in addition to the actual electricity charges consumed, irrespective of whether it was consumed or not. The removal allows for fair electricity pricing, the bills of consumers will depend on what they actually consume as electricity could be reduced when people adopt conservative methods and save money, such methods includes; switching off light bulbs, sockets, ACs, and heating systems.
- Economic boost in power sector investments: According to the Federal Government, the tariff increase is necessary to fund new energy infrastructure investments, and encourage private sector participation in the industry to reliable and sustainable power. Hopefully, these investments will provide huge capital for the economy, productive competition amongst DISCOs, alternative power generation and reduce pressure on the nation’s electricity grid systems.
Negative Impact of Electricity Tariff Increase on Nigerian Economy
- Increased power outage: An increased tariff has a negative impact on the consumers since there is no significant increase in amount of power supply instead due to such factors as global fuel prices, foreign exchange and reduced gas supply from the recent pipeline vandalism, the current capacity dropped drastically by more than half of what it used to be and frequent nationwide blackouts.
- High estimated bills causing inflation: This increase will affect small and medium scale enterprises, with more money chasing overhead costs such as electricity bills and fuel for generators, this increase will affect the end consumers who have to pay more money for goods and services rendered.
- Corruption amongst consumers: In times past, there were instances where consumers by-passed meters, avoid heavy electrical appliances switches and connected directly to power lines to avoid paying electrical bills. Nowadays, due to lack of prepaid meters and increased tariff prices, more consumers would seek such illegal alternatives to power connection.
- Lack of prepaid meters: This will lead to fraudulent over-charges on consumers without pre-paid meters, who would depend on the DISCOs discretion for electricity charges.
- Increase in operation costs in various sectors: These tariff plans will affect sectors such as agriculture, where farmers need electricity for processing and storage of farm products. Health sector for medical equipment and operations thus causing increase in medical bills. Also, in manufacturing and industries that need electricity for machine operations, thereby increasing maintenance costs.
Electricity can be generated from many diverse fuel sources such as coal, nuclear energy, natural gas, hydro-power and other renewal sources such as solar, wind, biomass, and geothermal. The government needs to explore, introduce policies and invest in more diverse forms of increasing power supply rather than rely on old outdated methods which are unreliable, unsustainable, and below the nation’s capacity generation.
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