Nigerians may pay higher tarrifs from this July

MAN: Cost of Production will increase

By Favour & Akinola Ajibade

Plans by the power distribution companies  (DisCos) to announce increase in the cost of electricity from N40 Per Kilowatts to between N150 to N300 Per Kilowatts on July 1,this year may not be feasible, as the Nigerian Electricity Regulatory Commission (NERC) is yet to speak on the matter days to take-off of the initiative. 

Precisely, consumers under Band C, who are  presently paying N40 Per kilowatts may pay as much as N100, while those under Band A may have their tarrifs jerk up from N56 to N150 Per kilowatts Hour.  

While speaking on the issue, the President,  Nigeria’s Consumers Protection Network, Mr Kola Olubiyo said that the new electricity tarrif will be market driven and that Naira/Dollars Exchange rates will now be subjected to a Free Market Free falls.

According to him, the idea will not translate into any significant significant improvement in reliable  electricity Supply nor translates into upscale in efficient service delivery due to decay power grid infrastructure, Increase in Technical and Commercial Losses and poor culture of market remittances, grid constraints amongst others.

Already some of the electricity distribution companies have advised Nigerians to load their Pre Paid Meters ( PPM ) in Advance. 

In a recent statement issued by the Abuja Electricity Distribution Company(AEDC) reads:  “Dear Valued Customers, effective from July 1st, 2023, please be informed that there will be an upward review to the electricity tariff influenced by the fluctuating exchange rate.

Recall that under the MYTO 2022 guidelines, the previously set exchange rate of N441/$ may now be revised to approximately N750/$ which will have to impact on the tariff associated with the electricity consumption.

For customers with Band C, with supply hours ranging from 12 to 16 hours per day, the new tariff base is expected to be N100 per kilowatt hour (KW/h). While Bands A with 20 hours and above and Band B with 16 to 20 hours will experience comparatively higher tariffs

For Customers with prepaid meters, we encourage you to consider purchasing bulk energy units before the end of this month as this will allow you to take advantage of the current rates and potentially make savings before the new tariffs come into effect. For those on postpaid estimated billion, a significant increment is imminent in your monthly billing”

MAN Reaction

Reacting to the issue, the Manufacturers Association of Nigeria (MAN) through Segun Segun Ajayi-Kadir, its director general stated that as a matter of fact, a further rise in electricity tariff could lead to the following:

Costs of production will soar: Higher electricity tariffs will directly increase the cost of production for manufacturers. Already, we have energy constituting between 28-40% of the cost structure of manufacturing industries. You can imagine the impact on manufacturing industries that are energy-intensive such as metal processing, heavy machinery, and chemicals manufacturing.

Profit margins will reduce: A spike in the electricity tariff will erode the profit margin of the manufacturers and reduce their ability to expand operations and create new jobs
iii. High probability of activities paralysis: This is a definite possibility among small and medium-sized enterprises (SMEs) who are unable to accommodate the tarrifs 

Potential decrease in the revenue collectible by the government: The hike in electricity tariff will reduce the manufacturers’ profitability and by extension the quantum of taxes and fees payable to the three tiers of Government. Manufacturers remain the largest income taxpayer in the country. Therefore, in the event of poor income generation due to high costs of production, the government purse will suffer.

. Manufacturers will ultimately pass on the additional cost to the consumers of their products: This will increase the cost of local made products in the market and complicate the rising inflation rate in the country.

Recession of manufacturing activities: An increase in electricity tariff will reduce the purchasing capability. One of the resulting effects is the fall in demand and recession of manufacturing activities over time.

vii. The sector’s competitiveness will definitely worsen: The high cost of the products will make locally produced items less competitive when compared with imported alternatives. This is also true of exports, as Nigerian products may find it more challenging to penetrate foreign markets. Such a move will restrict our export earnings because it will be impossible to compete with our counterparts in the global trading environment.

viii. High probability of outward investment. Some manufacturing industries may consider shifting production to other economies with lower electricity tariffs and guaranteed availability.

Manufacturers Expectations

The expectation of the manufacturers is that the Federal Government and NERC will ensure improvement in electricity generation, transmission and distribution that will lead to adequate and reliable electricity supply in the country, rather than increasing the tariff on the mere 4000MW to meet all revenue needs of stakeholders in the electricity supply industry.

Government should ensure that at least 90% of electricity consumers are metered to ensure consumption reflective electricity bill payment, formulate electricity policies that will aid investment in the energy industry to increase generation capacities that will usher in large-scale production of electricity and ensure effective implementation of the recent Electricity Act (2023) that is aimed at increasing the electricity supply in the country.