Nigerian electricity consumers will again experience hikes in monthly energy tariffs from the various distribution companies (Discos) operating in the country.
According to the Nigerian Electricity Regulatory Commission (NERC), the price increase will be effective from the end of October. Business Day reported.
Speaking at the Powering Africa conference on Monday in Abuja, the chairman of NERC Sam Amadi explained: “The period for submission of tariff review applications by Discos closed last week, and the review of these applications for possible ratification will be conducted in the next 30 days.”
Cost reflective tariffs
The reason for this, Amadi said, is to ensure cost reflective tariffs in the Nigerian electricity supply industry are capable of attracting private investments. Especially foreign direct investments (FDIs) and to ensure that these investments were bankable.
The Electric Power Sector Reform Act (2005) empowers NERC to review electricity tariffs in favour of Gencos and Discos in the event that market variables such as gas and its transportation cost, as well as naira to dollar ratio and inflation shift by over 5%.
Adeoye Fadeyibi, managing director of Transcorp Ugheli Genco, said: “At present, the changes in these variables against the initial benchmark set in the NESI is 55.5% for gas price, 23.9% for naira to dollar exchange rate, and 17.9% for naira inflation.”
To this end, a 250 cent per mmBtu gas price has been established by Gencos and ratified by NERC. Also, the transportation cost of 80 cents per mmBtu, as against the current 30 cents being used in the Nigerian Electricity Supply Industry (NESI), is being considered by NERC for approval by the end of October.
Impact on electricity consumers
The NERC chairman, however, warned that a balance between attracting investments and winning the confidence of consumers needed to be maintained.
“Bills will go up [for electricity consumers], but service quality also has to be ensured. We have to bear that in mind,” Amadi said.
An estimated 40-50% of electricity consumers in Nigeria are not metered. The metering gap creates energy pricing credibility problems between Discos and their customers, as well as between NERC and Discos.
This has formed a major source of uncertainty and discouragement for current and prospective investors into the Nigerian power sector.
In response, Rumundaka Wonodi, managing director and CEO of Nigerian Bulk Electricity Trading (NBET) plc, said his agency had developed a bankable power purchase agreement (PPA) template for Gencos and Discos. The aim is to ensure that PPAs are completed within three months and made functional and sustainable over time.
By way of example, Wonodi said: “We now have about 60 projects that we are dealing with. Azura and ExxonMobil took about three years; Century Power took about two and a half years.
“When they started, they did not have every [piece of] information needed to sign PPAs for transmission, gas availability, and local force mejure in the NESI […].”
He also said that due to gas transportation challenges and dollar naira rate fluctuations militating against market stability in the NESI, the Federal Government was being urged to put up a fund to manage these fluctuations.