A Review of the Nigerian Energy Industry

NERC’s bi-annual MYTO review indicates marginal rise in electricity tariff

Power transmissionOscarline Onwuemenyi 27 May 2014, Sweetcrude, Abuja – The Nigerian Electricity Regulatory Commission, NERC, has announced a review of the electricity tariff system as contained in the Multi-Year Tariff Order, MYTO-2, released in 2012.

The latest review showed that while some classes of consumers would pay more for per unit of electricity, others like R2 in Ikeja Distribution area would pay less for electricity.

NERC chairman, Dr. Sam Amadi who revealed details of the review in Abuja explained that the review was made to ensure that the industry remained financially viable and continues to attract investments.

According to him, “The MYTO provides that where the review shows that the aggregate of these variables (Inflation, exchange rate, gas price and available generation capacity) have changed by plus or minus 5% of the MYTO figures, the changes are significant and would result in a review of the tariff.

“The present review shows certain significant changes. For instance, whilst MYTO had projected an inflation rate of 13%, the inflation as at March 30, 2014 the cut-off date for the reviews is 7.8% which is 5.2% less than projected.

“Similarly, MYTO projected an exchange rate of $1 to N178 but by March 30, data from the Central Bank of Nigeria shows a rate of N157 to $1, which is 11.6% less than projected”.

Based on MYTO-2 assumptions, strong economic showings like lower inflation rate and lower exchange rate would have seen across the board decrease in tariff but low available generation capacity has ensured that such gains were wiped out.

As at June 1, 2014, there ought to have seen a general tariff hike as the electricity industry continues to grapple with the problem of low generation occasioned by inadequate gas supply to power plants.

Amadi also disclosed that as a result of the review the wholesale tariff paid to generation companies has also been reduced.

He further explained that though the review revealed favourable macro-economic indices, it also uncovered huge reduction in available energy capacity which the MYTO projected at 9,061mw in June 2012, but was at 4,306mw as at March 31, this year.

“This is a 52% reduction on projected capacity. The reasons for this huge loss have been extensively reported and explained. Suffice to say that the consequence of this loss of available capacity completely outweighs the benefits that were gained from the positive marco-economic indices earlier discussed”, he added.

The NERC boss, however, stressed that “when we talk about changes in tariff it is not that all customer classes are witnessing increase but the ones that have increases as matter of transparency we have to make it public.

“Take for example, the fixed cost for Abuja would have been N985.92 but in this review it is N702. Then the increase in terms of variable energy is may be N1. So if plug savings from fixed charge which is more problematic aspect because often times people don’t have supplies but you will see a reduction to what would have taken effect.

“For example the energy charge for R2, you have N14.70 but it was supposed to be N13.75, so just slight increase. If you look at some other customer classes like D1 there no increase in their energy charge and this also applies to C2. Actually the only customer classes that have changes are R2 and C1.

“In Ikeja the R2 customer instead of fixed charge of N894.56 by June 1 will still pay the current rate of N750, there is a reduction in they ought to pay. And also the R2 customer energy charge remains N13.21,” he added.

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