A Review of the Nigerian Energy Industry

NERC defends planned electricity tariff hike 

…Says it’s aimed at ensuring cost-reflective tariff
Oscarline Onwuemenyi 23 September 2015, Sweetcrude, Abuja –  Chairman of NERC, Dr. Sam Amadi, says the new electricity tariff hike expected to come into effect by the end of October is aimed at ensuring cost-reflective tariffs in the Nigerian electricity supply industry.
NERC Chairman, Dr. Sam Amadi.
NERC Chairman, Dr. Sam Amadi

Amadi announced the planned tariff increase recently in Abuja, saying “The period for submission of tariff review applications by Discos closed last week, and the review of these applications for possible ratification will be conducted in the next 30 days.”

But, he said the tariff review will bring about a cost-reflective tariffs in the industry, capable of attracting private investments, especially foreign direct investments, FDIs. It is also aimed at ensuring that these investments were bankable, Amadi said.
The Electric Power Sector Reform Act (2005) empowers NERC to review electricity tariffs in favour of Gencos and Discos, if market variables such as gas and its transportation cost, as well as naira to dollar ratio and inflation shift by over 5 percent.
“At present, the changes in these variables against the initial benchmark set in the NESI is 55.5 percent for gas price, 23.9 percent for naira to dollar exchange rate, and 17.9 percent for naira inflation,” the Managing Director of Transcorp Ugheli Genco, Adeoye Fadeyibi, said at a Senate power sector probe session last week.
To this end, a 250 cent per mmBtu gas price has been established by Gencos and ratified by NERC. Also, the transportation cost of 80 cents per mmBtu, as against the current 30 cents being used in the NESI, is being considered by NERC for approval by the end of October.
The NERC chairman however warned that a balance needed to be maintained between investments attraction and winning the confidence of consumers.
“Bills will go up, but service quality also has to be ensured. We have to bear that in mind,” Amadi told a gathering of Nigerian power sector operators as well as local and foreign investors, including representatives from Manitoba Hydro International and the Africa Finance Corporation.
An estimated 40 to 50 percent of electricity consumers in Nigeria are not metered. The metering gap creates energy pricing credibility problems between Discos and their customers, as well as between NERC and Discos. This has formed a major source of uncertainty and discouragement for current and prospective investors into the Nigerian power sector.
In response, Rumundaka Wonodi, managing director/CEO, Nigerian Bulk Electricity Trading, NBET, Plc, said his agency had developed a bankable power purchase agreement, PPA, template for Gencos and Discos in order to ensure that PPAs were completed within three months and made functional and sustainable over time.
According to him, the standardised PPA format is now on the company’s website so that prospective investors into the sector can review it and know exactly what requirements they have to meet in order to secure their PPAs in shorter time periods.
He also said that due to gas transportation challenges and dollar-naira rate fluctuations militating against market stability in the NESI, the Federal Government was being urged to put up a fund to manage these fluctuations.


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