Nigeria’s electricity tariff issue very touchy and political, but needs reform to attract foreign funds – AFC

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By Nume Ekeghe

The Africa Finance Corporation (AFC) has said for Nigeria to attract more investments to the power sector, the federal government must adjust electricity tariffs.

The Managing Director of AFC, Mr. Andrew Ali, who made this call yesterday at the annual conference of the Finance Correspondents Association of Nigeria (FICAN), stressed that the tariff adjustment was necessary to attract huge investment in power infrastructure, which the government alone could not provide.

According to him, if these funds are attracted, it would go a long way in reducing the ever-increasing infrastructure deficit in the sector.

AFC is a pan-African multilateral development finance institution saddled with the task of bridging Africa’s infrastructure investment gap through the provision of debt and equity finance.

According to him, “Electricity tariff issue is very touchy and political. The reality is that, we do not have economic cost-reflective tariffs, that is, tariffs that would encourage investors to come and build this infrastructure. The government needs a political will to ensure that appropriate tariffs are set.”

Nigeria Electricity Regulatory Commission, the regulatory authority in the power sector, had recently said it was contemplating a major adjustment in the calculation of electricity tariffs to be paid by consumers in the country’s electricity sector.

NERC, which released a consultation paper on the review of the Multi Year Tariff Order (MYTO) in Abuja recently, stated that it was looking to introduce a flexible electricity tariff review, one that would see tariffs reviewed either on a monthly or quarterly basis to reflect periodic changes in the country’s economy.

The commission said it was, however, awaiting the response of the stakeholders to its consultation.

The MYTO is the sector’s guiding document for determining the tariff charged to consumers by electricity distribution companies (Discos). It is often reviewed annually and bi-annually by the regulator, wherein changes in fundamental aspects of the industry’s business like foreign exchange; inflation rates; gas prices; and capacity generation amongst others are captured and inputted in the tariffs of the Discos to their customers.

In the current electricity tariff regime, which was introduced in December 2015,residential customer classification (R2) in Abuja Electricity Distribution Company, that were paying N702.00 fixed charge every month, had their energy charge increased by N9.60. Also, residential customers (R2 customers) in Eko and Ikeja electricity distribution, which had their customers paying N750. 00 fixed charges now have them paying N10 and N8 increase respectively in their energy charges. Similarly, the burden of N800.00 and N750.00 fixed charges was lifted off Kaduna and Benin electricity consumers. These consumers witnessed increase of N11.05 and N9.26 respectively in their energy charges. For commercial customers’ classification C2 in Ibadan and Enugu paying fixed charges of N17, 010. 00 and N22, 141. 00, they had their energy charge increased by N12.08 and N13.35 respectively.

Ali, who was represented by the Head of Advisory, Mr. Fola Fagbule, pointed out that about $100 million was required for investment in infrastructure yearly either by private or public sector. “How is this investment going to happen when there are so many constraints? In spite of the privatisation that has happened in electricity, there are issues in every part of the value chain…

“Basically, financing infrastructure is the responsibility of governments in any country of the world, but the challenge right now in Nigeria is effectively getting to the limit as far as its ability to spend is concerned. Effectively, you have a government that has its ability to spend becoming significantly constrained.”

Also speaking at the event, the Acting Director General, Infrastructure Concession Regulatory Commission ICRC, Mr. Chidi Izuwa, noted that, in line with the federal government’s drive to improve transparency and attract investments, the FG would be launching a PPP contract disclosure portal next week.

Izuwa said: “On the 22 of September which the Vice President would be launching Nigeria’s PPP contract disclosure portal. We are the first country in the world to do it. We are going to be launching a portal that would contain all PPP information about our country and it has been certified by the World Bank and the World Bank is going to be present for this.”

“That is a major accomplishment for the government in line with the transparency objectives of his Excellency, President Muhammadu Buhari. So that is something very critical and useful to infrastructural development,” he added.

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