Mon, Jun 17 2024 17 June, 2024

Nigeria electricity tariff hike raises concern, prompts call for renewables

The Nigerian electricity regulator’s 300 percent tariff hike has raised concerns, prompting calls for alternative energy development.

Top down aerial view of Lagos Island, Nigeria (Photo: Adobe Stock/Terver)

A 300 percent hike in the Nigeria electricity tariff to N225 ($0.15) per kilowatt-hour was recently approved. The vice chairman of the Nigerian Electricity Regulatory Commission (NERC), Musiliu Oseni, claimed that the rate increase would only affect 15 percent of the 12 million electricity customers in the country. He also said it would be for urban consumers, also known as Band A consumers.

The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), on April 1st, increased the wholesale price of gas to power plants by 11% from $2.18 per MMBTU to $2.42/mmbtu (Million British Thermal Unit), leaving power generation companies with additional cost.

Since January of this year, gas companies have reduced supply to power plants following years of unpaid invoices amounting to over $1.2 billion. The government intervened last month by paying $120 million to the companies, as power supply across the country dwindled.

The regulator said in a press statement that the Petroleum Industry Act 2021 gives it the power to set domestic base prices for the local market. Natural gas generates more than 70% of electricity in Nigeria.

Citizens and labour unions in Nigeria have opposed this decision. The labour union and some experts said the increment is unacceptable in the face of the country’s current hardship and inflation. Nigeria’s inflation rate rose to 22.04% in March 2023, compared to the February 2023 headline inflation rate, which was 21.91%.

The Nigeria Labour Congress and the Trade Union Congress argued that the tariff hike would drive manufacturers out of business, worsen inflation, and stifle small and medium enterprises. They added that no place in Nigeria enjoyed up to 20 hours of power supply daily.

Nigeria has the lowest access to electricity globally, with about 92 million people out of the country’s 200 million population lacking access to power.

Impact on manufacturers, SMEs

Sonia Ebiki, an energy lawyer and head of the Legal Department at MG Vowgas Group, told Gas Outlook that the hike in Nigerian electricity tariffs and increase in gas prices for power generation are likely to significantly impact manufacturers, exacerbating inflation and posing challenges for small and medium enterprises. She said this could lead to increased production costs, which manufacturers may pass on to consumers, resulting in higher prices for goods and services.

“SMEs, already operating on tight budgets, may struggle to absorb these additional costs, potentially leading to reduced competitiveness and even closure of businesses.”

Jide Pratt, a Country Manager at TradeGrid, argued that NERC and the Federal Competition & Consumer Protection Commission have not done enough regarding consumer protection. He expressed concerns about insufficient data analysis before NERC increased the electricity tariff.

“I also do not think we can have this increase when we know for a fact that distribution companies are not performing with the supply of the 20 hours, which I see as a prerequisite for the high bills. The system needs to solve these anomalies immediately by credit to card or token (24 hours max ) as opposed to waiting until month end to reconcile while customers have paid upfront.

“The effect on the cost of doing business is immediate, and while this happens more is needed to run SMEs that happen to be located in A feeder locations, which means this cost will impact services and be passed on to the end user.”

Stakeholder concerns

Meanwhile the Abuja Chamber of Commerce and Industry expressed concern about possible risks to the long-term sustainability of businesses in light of the recent increase in Nigeria’s electricity rates.

President Emeka Obegolu claimed that the increase in tariffs would make it more difficult for companies to grow and invest in new technology, which would reduce their competitive advantage in both domestic and international markets.

“Many enterprises are already struggling with reduced demand, supply chain disruptions, and financial constraints. The burden of higher electricity tariffs exacerbates their challenges and threatens their long-term viability.”

Similarly, workers under the aegis of the National Union of Electricity Employees have called for a reversal in the hike in electricity tariff to avoid further socioeconomic woes. The workers threatened to abruptly shut off the country’s electricity supply if any of their colleagues were attacked while performing their jobs due to the fee hike.

Alternative energy need

Ebiki said that beyond merely removing subsidies, there’s a critical need to explore alternative energy sources for production. The head of the Legal Department at MG Vowgas Group noted that although the Petroleum Industry Act 2021 provides for exploring alternative energy sources, its physical implementation is very minimal.

“Diversifying the energy mix can help reduce reliance on gas and mitigate the impact of tariff hikes. Implementing renewable energy solutions could provide a sustainable and cost-effective alternative for powering manufacturing processes and supporting SMEs. A country like Nigeria can only survive on energy mix. One source of power would never be sufficient or efficient.”

She further said removing tariffs on solar panels and supporting infrastructure such as batteries encourages the adoption of solar energy systems, reducing reliance on traditional power sources and mitigating the impact of tariff hikes. “This would not only lower energy costs for manufacturers but also promote sustainable energy practices, supporting economic growth and environmental protection.”

On the contrary, Habu Sadeik, an energy analyst said the issue is that there is nothing cheaper than the grid power. He said when you talk about alternatives, it’s more expensive. “For instance if a manufacturer wants to use solar or any other renewable energy to produce it can cost more than using the national grid.”

Siemens power project

The Nigerian government signed a power project deal in 2019 with Siemens to deliver 7,000 megawatts of electricity to the national grid by 2021, and 11,000 MW by 2023.

The deal with the German engineering firm was signed under the presidential power initiative, a power upgrade and modernisation programme. Siemens announced in 2023 that as a result of a hike in prices and COVID-19, an additional 5 years would be needed to complete the project.

Ebiki said the Nigerian government can expedite the Siemens power infrastructure project by streamlining bureaucratic processes, allocating sufficient funding, and ensuring strong collaboration between relevant stakeholders.

“By accelerating the implementation of this project, Nigeria can improve its power generation capacity, reduce electricity costs, and enhance the competitiveness of its manufacturing sector,” she said.

However Pratt believes that the Nigerian Ministry of Power must share regular targets and milestones achieved on the Siemens deal as they happen and stop playing politics.