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Despite the public outcry trailing the recent 230.8 percent rise in electricity tariff for premium power consumers nationwide, the federal government on Friday hinted that it plans to extend a similar measure to every Nigerian who has access to on-grid electricity.
The government said it would convert the entire power sector into a single band from the current six, with cost-reflective prices being fully implemented in the next three years.
Speaking during a weekly briefing organised by the Ministry of Information in Abuja, the Minister of Power, Chief Adebayo Adelabu, said the recent development was the first step in the government’s plan to completely remove subsidy payment.
In a separate document seen by THISDAY, the Nigerian Electricity Regulatory Commission (NERC), stressed that with the increase in tariffs for Band A customers from N68 to N225, it has succeeded in saving about N1.4 trillion from what it stated was the projected N3.2 trillion subsidy for 2024.
At the current price of N225, it argued that premium customers would be paying less than half of what they would otherwise spend if they deployed other alternatives like diesel-powered generators.
But Adelabu maintained that it no longer makes sense for the government to continue paying close to 70 percent of electricity subsidy for Nigerians, explaining that to ensure the current economic downturn does not harshly impact the lower rung of the society, government would embark on the gradual phase-out of underpayments for bands B-E and then lifeline.
Adelabu, said the federal government had spent about N2.9 trillion on electricity subsidy.
He said the government was still subsidising 85 percent of electricity supply in the country despite an increase in tariff for Band A customers.
He said the government remains pro-poor in its power policy because it is subsidising nothing less than 67 percent of the cost of producing, transmitting, and distributing electricity in Nigeria.
He said the government is not ready to aggravate the sufferings by refusing to adopt 100 percent withdrawal of subsidy on electricity
“This tariff review is in conformity with our policy thrust of maintaining a subsidised pricing regime in the short-run or the short-term with a transition plan to achieve a full cost reflective tariff for over a period of, let us say three years.
“It is because of government sensitivity to the pains of our people that will not make us migrate fully into a cost-reflective tariff or to remove subsidy 100 percent in the power sector like it was done in oil and gas sector.
“We are not ready to aggravate the sufferings any longer which is why we said it must be a journey rather than a destination and the journey starts from now on, that we should do a gradual migration from the subsidy regime to a full cost-reflective regime and we must start with some customers.
“This is more like a pilot (scheme) for us at the Ministry of Power and our agencies. It is like a proof of concept that those that have the infrastructure sufficient enough to deliver stable power, those enjoying 20 hours of light should be the ones to get tariff added,” he pointed out.
Adelabu, argued that anybody that goes into any business intends to first recover cost, then if possible, make some profit, explaining that the moment a business cannot cover costs, the sustainability of such business is doubtful and will be run aground.
He observed that if the federal government was to pay the about N3 trillion subsidy for this year, it would be more than 10 percent of the national budget for 2024.
“The power sector is just a single sector out of so many sectors that government has to attend to. We have works, we have housing, we have education, we have health, we have defence and so on that are all competing for this meagre revenue from the government.
“So it will be very insensitive on our part to force or compel government to continue to subsidise at that rate of almost N3 trillion for the power sector alone. We just have to be realistic and considerate. We also must ensure that the regulators are independent and there is consequence management,” he stressed.
With a little above 12 million registered electricity customers nationwide, Adelabu said the recent increase would only affect about 1.5 million customers.
The remaining 10.5 million customers, he said, would continue to enjoy government subsidies at about almost 70 percent, until it is gradually phased out.
He emphasised that if the Discos are able to comply with the service level agreement, which is 20 hours for Band ‘A’ at the minimum, it is still far cheaper than the alternative source of diesel and petrol generators.
“You will agree with me that the average cost of generating a kilowatt hour of power today, using diesel and petrol generator is not less than N450 to N500 because of the capital investment of purchasing the generator, the daily operational fuelling of the generator and the intermittent servicing of these generators.
“The cost is not less than N500. So, if we are putting the tariff at N225, I believe it is more than 50 percent cheaper than running alternative power sources,” Adelabu maintained.
He stressed that for the first time in many years, the government was taking a bold step to address the fundamental issues confronting the power sector, including liquidity and pricing challenges.
The minister emphasised that the sector had been deprived of the required liquidity to keep it running on a sustainable level and is therefore no longer attractive to investors.
“Even the operators don’t have enough liquidity to invest in enhancement of their infrastructure. The generator companies cannot pay the gas companies, which is the raw material that they use to generate power. The generator companies cannot service their equipment.
“It got to a level that they cannot even pay the salaries of their workers because of the accumulated debt in the sector due to lack of liquidity and commercial pricing.
“And I believe that previous administrations have shied away from addressing this. It is a tough conversation, but we must have it at a point if we are serious about stable power sector in this country,” he added.
He assured that it might be painful in the short run, but the gains will come very soon and will be permanent.
At the moment, he stated that all Nigeria’s gas pipelines are bad as a result of vandalism, leading to a lack of adequate pressure in the gas pipes.
Olawale Ajimotokan, Chuks Okocha, Emmanuel Addeh and Peter Uzoho
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