A Review of the Nigerian Energy Industry

Nigeria hinges success of power reforms on financial viability

Providence Obuh

19 June 2012, Sweetcrude, LAGOS – THE promise of improved power supply in Nigeria can only materialise if there is improvement in the financial viability of the power sector, says Dr. Sam Amadi, Chairman of the Nigerian Electricity Regulatory Commission (NERC).

Speaking at the Nigerian Economic Summit Group (NESG’s) Policy Dialogue with the private sector, with theme: ’Appropriate Pricing and the Future of Nigeria’s Electricity Supply Industry,” Amadi said that until the sector is financially viable, it will not attract the kind of capital required to improve and sustain the sector, stating that a good tariff structure should optimise revenue to ensure financial viability.

“One of the acute challenges of reform of electricity in Nigeria is financial viability of the sector.”
Speaking on tariff, he said that NERC has designed the tariff that every electricity distribution company will charge its customers in a manner that maximizes revenue and social equity.

He recalled that the National Electric Power Policy 2001 clearly identifies right pricing as key to reform of the electricity sector, noting that it provides that the tariffs in the industry should reflect the actual cost of producing, transmitting and distributing electricity.

He added that the ESPR Act 2005 requires NERC to set a tariff that allows an efficient operator to recover prudent costs, he said, adding that setting a cost-reflective tariff regime is not discretional.

“Unlike in many jurisdictions where regulators are not bound to make tariff cost-reflective, in Nigeria an effective regulator must ensure that the tariff structure allows recovery of cost of producing, transmitting and distributing electricity,” he said.

He added, “A lifeline tariff has been provided for poor consumers who consume not more than 50mwh per month, they will pay a flat and universal N4/mwh. They will not pay fixed charges. “This class of consumers are benefiting from a subsidy of N50 billion provided by the government. Residential consumers who use a single or three-phase meter also receive a bit of subsidy to avoid huge rate shock.

“Medium and small enterprises under commercial 1 are also subsidized by government and cross-subsidized by the bigger commercial and industrial consumers. The big caveat is that both the subsidy and cross-subsidy do not distort the market and do not undermine the revenue requirement of the industry.”

In addition, he noted that the Multi-Year Tariff Order (MYTO-2) succeeds in providing strong incentive for private sector investment in the value-chains of electricity including the off-stream sectors of the industry without undermining the affordability of electricity by the urban and rural poor.

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