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Economy | Power & Energy

Discos Increase Tariffs Without Public Notice

Jan 06, 2023   •   by CSL Research   •   Source: CSL   •   eye-icon 398 views

Based on a Punch news report, the electricity distribution companies (Discos), without a public notification have increased the tariff payable by power consumers across the country. The Abuja Electricity Distribution Company (AEDC) was on Twitter accused by a consumer of increasing the tariff for non-maximum demand customers by N12.65 in December 2022. In response to the tweet, the AEDC noted that the tariff hike was based on the order of the Nigeria Electricity Regulation Commission (NERC). There has however been no official communication from NERC on the increase. The Nigerian Electricity Regulatory Commission (NERC) mid last year, gave some Electricity Distribution Companies (Discos) approval to increase their tariffs, stating that the tariff hike was based on the extraordinary review of the Multi-Year Tariff Order which took effect from January 1, 2022. NERC based the increase on the Performance Improvement Plans of the DisCos and indices such as gas price, inflation, exchange rate, US inflation rate and available generation capacity. 

 

The most potent factor driving the liquidity squeeze in the power sector stems from the non-cost reflective tariffs charged by the Discos. This has remained a major clog in the wheel for the Discos, making most of them technically insolvent. The cash flow generated from end consumers (in a case where they get paid for all they distribute) significantly falls short of the breakeven point needed to keep operations running due to poor pricing. Matters worsen when we factor in payment defaults, power theft and Aggregated Technical Commercial and Collection (ATC&C) losses. We note that the Federal Government has had to intervene on different occasions to keep the industry on its feet. The problem of cost-reflective tariffs stems from the MYTO framework used to guide pricing. The framework’s cost assumptions are far from current realities. 

 

NERC has been working to implement new electricity tariffs but has been challenged by government unwillingness, resistance from Discos who are sometimes unwilling to meet some terms of the new MYTO framework and resistance from consumers. Nevertheless, there have been increases, though still inadequate according to operators. That said, we reiterate that though we agree that cost-reflective tariffs are needed to realise the gains of the power sector privatisation exercise, we believe any upward review of utility costs at a time like this, will necessarily strain an already impoverished Nigerian consumer.

 

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