In the face of mounting challenges, Nigerians are preparing for tougher times ahead as electricity tariffs are set to increase by over 40 percent in the coming days. This development marks another blow to energy subsidies, potentially bringing an end to all forms of government support in the country’s power sector.
The market reform agenda of President Bola Ahmed Tinubu’s administration faces a critical test with the impending tariff hike, which follows the removal of subsidies on Premium Motor Spirit (PMS) and the floating of the naira. These policy changes have complicated the price-setting process of the Nigerian Electricity Regulatory Commission (NERC) and its 2022 Multi-Year Tariff Order (MYTO).
The current average tariff of N64 per kilowatt, established in the MYTO for 2022, is based on an exchange rate of N441/$ and an inflation rate of 16.97 percent. However, the prevailing inflation rate of 22.41 percent, projected to reach 30 percent by the end of June, coupled with the floating naira, is expected to push the new average tariff to approximately N88 per kilowatt. This increase aims to help the power sector recover its costs.
The impending tariff hike, combined with the existing metering gap of over seven million, soaring gas prices, distribution losses, and insufficient generation capacity, poses significant challenges for households and small businesses. Energy costs alone are projected to rise by over 70 percent, placing a burden on purchasing power already strained by unemployment and poverty.
Stakeholders have expressed concerns that the Nigerian Electricity Supply Market may face even tougher times ahead as consumers lose faith in the system and resort to alternative energy sources. The unreliability of the grid, resulting in persistent power shortages and financial losses, adds to the growing apprehension about affordability.
While some experts argue that the tariff increase is necessary to address the country’s forex instability and support the government’s efforts to stabilize the economy, others criticize the pricing structure. They highlight the need for market fundamentals to determine rates, emphasizing the importance of affordable electricity for the development of the economy.
The signing into law of the new Electricity Act is seen as a potential turning point in Nigeria’s power sector, as it aims to address issues of inefficiency and unreliable supply.
However, challenges such as unjust tariffs, inadequate metering, and limited grid connectivity must be tackled to achieve a balance between consumer interests and the financial sustainability of the sector. Additionally, experts call for a review of gas pricing and the promotion of local currency transactions in the gas-to-power industry.
As the government moves forward with the tariff increase, it is crucial to consider the overall process and explore opportunities for reforming the pricing system. Ultimately, Nigerians hope for a reliable and cost-effective electricity supply that aligns the cost of energy with the value exchanged, ensuring a brighter future for businesses and households in the country.