Friday, July 19, 2024

NERC may approve tariff hike as electricity subsidy hits N2.8tn

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There are strong indications the Federal Government may consider the request by power distribution companies for a review of their tariff, as the government spending on electricity subsidy has risen to N2.8tn.

A new report by the Nigerian Electricity Regulatory Commission (NERC) on Sunday, indicated that past hikes in electricity tariffs by Discos saved the government from paying additional N1tn in subsidy to power firms annually.

The July 2023 NERC report was titled, ‘Overview of the Nigeria Electricity Supply Industry.’

Providing an update on the country’s tariff review journey, the commission stated that “between January 2020 and January 2023, tariff increased from 55 per cent of cost recovery to 94 per cent.

It added, “Without the tariff reviews that commenced in 2019, subsidies payable by the government would have grown to about N1tn per annum by 2023. Service-Based Tariff was instrumental in the transition to cost-reflective levels.”

On subsidy payable, the NERC stated that subsidy (tariff shortfall) paid by the Federal Government between 2015 and 2022 rose to N2.8tn in December last year.

It added that between January and April this year, subsidy on electricity gulped N57bn, adding that the Service-Based Tariff scheme help in reducing the amount spent by the government on power subsidies.

“Annual subsidy reduced from N528bn in 2019 to N144bn in 2022. Subsidy in 2023 year-to-date (January to April 2023) stood at N57bn.

“Service-Based Tariff was instrumental to the reduction of tariff subsidy. The financial burden of tariff subsidies between 2015 and 2022 stood at NGN2.8tn,” the NERC stated.

The yearly hikes in power tariffs by the Federal Government through the NERC have been targeted at ending subsidies on electricity.

Recall that the 11 power distribution companies in Nigeria had applied for the review of electricity tariffs so as to incorporate the changes in Nigeria’s macroeconomic parameters.

The report stated that the NERC disclosed this in a notice, as it said the Discos stated that their reasons for the rate review were premised on factors affecting the quality of service, operations and sustainability of the companies.

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