Cheap electricity: Nigeria ranks 109 amid 168% tariff hike in eight years
Despite a near-zero improvement in power supply efficiency under the regime of the President, Major General Muhammadu Buhari (retd.), and contrary to the boast by the Minister of Power, Abubakar Aliyu, that Nigeria enjoys the cheapest electricity, findings have shown that over 100 countries offer more affordable electricity compared to Nigeria.
Painfully, this is coming as the current regime has, in the last eight years, increased electricity tariff by over 168 per cent, with billing jumping from an average of N23.5 a kilowatt-hour (kWh) in 2015 to N63 kWh as of January this year. Nigerians paid between N16 and N31kWh in 2015 for electricity consumption. Currently, a consumer pays between N55kWh to N71kWh, depending on the categorisation.
Notwithstanding the high cost of electricity, supply gaps remain huge with many Nigerians paying estimated bills for unavailable electricity and further depending on generating sets for household and commercial supply.
Indeed, amidst high electricity theft, estimated billing and a worsening financial crisis in the power sector, about nine agencies and ministries of the Federal Government owe the distribution companies about N75 billion accumulated between 2015 and 2020. If the government pays the N8 billion captured in the current budget, Buhari will still transfer a N67 billion-electricity debt burden to the incoming administration.
While many Nigerian households and commercial customers survive on generating power, a UK-based research company, Cable, which measures electricity bills across the world, listed Libya, Angola, Sudan, Kyrgyzstan and Zimbabwe as the top five countries with the cheapest cost of electricity.
A popular online news platform, (not The PUNCH) disclosed that in Libya, one kWh of electricity stands at $0.07; it is at $0.013 in Angola, $0.014 in Sudan and $0.017 in the case of Kyrgyzstan while consumers in Zimbabwe pay $0.021.
Measuring over 230 countries and projecting on Nigeria’s official exchange rate then, Nigeria came to 109 on the list of countries with the cheapest electricity as the research projected the average electricity tariff to stand at N56 for one kilowatt per hour.
Though the report captured a lower exchange rate compared with the prevailing situation, Nigeria currently charges between $0.15 to $0.17 for a kWh even at a time when the minimum wage is N30,000 and purchasing power nosedives by the day.
The Nigerian Electricity Regulatory Commission Order 142 issued in January 2015 shows that residential electricity consumers were paying between N16 to N31 for one kilowatt per hour. Commercial customers were paying between N23 to N29 while industrial customers were paying between N23 and N31. Special customers were paying about N26 for one kWh.
Going by the projection of NERC, no electricity consumer should pay more than N45 for one kilowatt per hour between 2015 and 2024 but economic realities changed along the line, forcing the tariff to increase by over 150 per cent.
In the current Multi-Year Tariff Order – 2022 (MYTO – 2022) approved by the NERC to run from 2022 to 2026, consumers, who were paying about N16 per kilowatt/hour in 2015 now pay about N55, while maximum demand customers under band A, who were expected to enjoy electricity for 20 hours per day are paying about N71 to N80 for one kilowatt per hour. Pegged at an official exchange rate of N461.50 to a dollar, that is about $0.15 – $0.17.
Coming at a time when consumers pay for electricity poles, metres, transformers and other necessities of the market, most stakeholders, who spoke with The Guardian blamed the despondent state of the sector on the policy mismatch of the Buhari government, insisting that it remained out of place to compare Nigeria with the highest number of people without access to electricity with other countries.
Former President of Chartered Institute of Bankers of Nigeria and Professor of Economics at Babcock University, Segun Ajibola, said comparing local prices of electricity in Nigeria with other countries is one-sided, stressing that there was the need to first compare domestic incomes, such as wages and salaries with the international ones.
According to him, Nigeria’s minimum wage is acknowledged to be one of the lowest in the world even with the continuous depreciation in the value of the naira.
“In other words, Nigeria has one of the lowest capacities to pay for such essential services in the world. It is not enough to canvass the repricing of such services only, the real income of the consumers need to be strengthened to balance the equation,” Ajibola said.
Ajibola noted that it was up to the system to deal with electricity theft in the country, stressing the solution to the problem is to invoke the legal provisions against electricity theft and make examples of some individuals and corporate bodies caught in the despicable act.
“Few things continue to beat imaginations regarding the administration of electricity supply in Nigeria. One is the vexed issue of estimated billing; the second being the compelling need by consumers to fund such things as electric poles, cables, supply and/or installation of transformers to guarantee supply of electricity to their communities. I think the DisCos and other agencies have performed poorly to date and there is a need to overhaul the existing arrangements and breathe new life into electricity generation, transmission and distribution in Nigeria,” Ajibola noted.
On his part, the former Chairman of NERC, Sam Amadi, noted that tariffs have been increased several times in the country, adding that while the industry is not yet at what some call a ‘cost-efficient’ tariff, Nigeria has made significant improvement, especially with the service-based tariff.
“Tariff is a problem but not the most pressing or urgent problem. The real challenge may be policy-oriented and managerial. If we manage the utilities better we will have an improvement in the short term, which will encourage more tariff increases.
“If we implement sound policies that attract investment and remove the other risks, we can attract more investment in finance and technical ability even while the tariffs move towards cost reflectivity. I think both utilities and consumers are suffering a lot. Utilities suffer financial losses arising from the theft and their inefficiencies.
Consumers are mostly victims of poor supply and overbilling for unmetered customers,” Amadi said.
According to him, Nigeria needs to tackle energy theft through rigorous enforcement of laws, stressing, however, that the country may not succeed much until customers are metered.
Public-private partnership consultant, Joseph Tsavsar, said it costs higher to access power through other means than the public supply, noting further that the challenge in the sector is policy related.
“Power all over the world is considered an economic commodity for sustainability, once it is considered a social commodity there will be no sustainable growth.
“In simple economics, you need input to get the commiserate output, if your tariff is cheap and you are proud of it then expect poor output as is the case in the sector,” Tsavsar said.
According to him, not that there is no investment in the power sector in Nigeria but it is misdirected for personal gains rather than the interest of the sector.
Tsavsar said there is no commercial value in the sector as there is a misalignment of investment resulting in poor power supply.
“Power theft is also a function of supply, once there is no supply, people will turn around to find means of helping themselves especially where there is no deliberate policy to check or punish perpetrators.
“In other countries like India, there is a special tribunal for power theft and is dispensed speedily, which deters other people from engaging in it and there are also efforts in increasing supply to meet the demands,” he said.
Tsavsar said it is an abnormality in the economic sense of the business for customers to be buying poles and other materials to guarantee supply.
A renowned professor of petroleum economics and policy research, Wunmi Iledare, said the electricity situation in the country remained worrisome.
According to him, the power sector is vertically integrated and any effort to disaggregate it into subsections without infrastructure is consequential, adding that each subsection must be optimal in performance to add aggregate value.
“Decentralisation calls for proper reform and restructuring of the market is inevitable. DisCos cannot even survive the market and regulatory inefficiencies because they don’t even understand electricity market complexity and structure beyond revenue collection in my opinion, just unfortunate. Everything seems to be just a daily survival journey everywhere in Nigeria,” he said.
Electricity Market Analyst, Lanre Elatuyi, who disagreed with the minister’s comment on cheap electricity, said: “It is always good to take into perspective the percentage of consumers’ income spent on electricity.
He stated that the value of lost load in Nigeria remains high, adding that the value of the lost load is a monetary indicator expressing the costs associated with an interruption of electricity.
“Nigerians spend more in captive generation fuelled by diesel and petrol to provide alternatives due to inadequate supply from the grid,” Elatuyi said.
Energy Lawyer and Consumer Advocate, Kunle Olubiyo, said it is baseless to compare electricity prices in Nigeria where supply is barely available.
“What needs to be done is to do multi-sectoral socio-economic analysis, like Purchasing Power Parity (PPP) amongst countries, tariff affordability index across countries, government subsidy (if any) across countries, customers’ connection population per Megawatts of generation,” Olubiyo said.
According to him, a simple country currency conversion to dollars will not tell the true story.
Olubiyo said every country has its uniqueness and how the system compensates itself, stating further that tariff increases are tied to a guaranteed supply of electricity in the most efficient way and manners that support efficient service delivery and stable, safe and reliable delivery of power.
He said end users have experienced about 500 increases in electricity tariffs in the country without a corresponding increase in efficient service delivery.
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