Nigeria May Triple Energy Tariff To Spur Investment, Price May Hit N200/kWh

The federal government is planning to almost triple energy prices within weeks, people in the presidency with knowledge of the matter have said, in a bid to attract new investment and slash about $2.3 billion spent to cap tariffs.

Separate reports by Bloomberg and Reuters said power companies will be allowed to raise prices to N200 naira ($0.15) per kilowatt-hour from N68 naira for urban consumers this month.

The sources asked not to be identified because they aren’t authorised to speak on the matter. The customers, Bloomberg said, represent 15 percent of the population that the government says consume 40 percent of the nation’s electricity.

Nigeria’s economy has been hobbled by the lack of power supply while an increasing subsidy burden has weighed on government finances, diverting capital from building roads and spending on health care.

With the latest move, President Bola Ahmed Tinubu, the reports said, wants to cut down on price distortions, which haven’t ended despite breaking the state-owned power firm into 11 distribution companies and several generation firms and selling them to investors.

“The regulator will make any pronouncements based on its discussion with the distribution and generating companies. The presidency cannot say anything at this stage,” Bayo Onanuga, a spokesman for the presidency was quoted to have  said, adding that the “electricity sector is hurting.”

The move to raise the tariff follows pressure from Nigeria’s debt-burdened electricity distribution companies that want to charge a cost-reflective price to improve their finances, the people said.

While the country privatised generation and distribution in 2013, tariffs are set by the Nigeria Electricity Regulatory Commission (NERC).

Power firms aren’t allowed to charge enough to recover the cost of distributing electricity, with the government paying the difference as a subsidy to companies in the sector.

The government has in the past said that electricity companies are short of an estimated N2 trillion in capital and need new investors to revive the industry.

The move will also help reduce government spending as it will now only subsidise the poor in rural areas. The intervention gulped around N120 billion naira monthly, before authorities devalued the currency at the end of January, Bloomberg said.

Last month, the International Monetary Fund (IMF) warned that the capping of fuel pump prices and electricity tariffs below cost recovery could have a fiscal cost of as much as 3 percent of Nigeria’s gross domestic product in 2024.

Nigeria suffers from power blackouts as its more than 200 million people rely on grid electricity of less than 4,000 megawatts from an installed capacity of 13,000 megawatts despite an abundance of gas and hydro capabilities.

Earlier on Monday, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) increased the price of natural gas which is used to generate more than 70 percent of electricity in Nigeria. Power companies will now have to pay $2.42 per one million British thermal units from the previous rate of $2.18 MMBtu.

Separately, Reuters said that Nigeria plans to axe an electricity subsidy for 15 percent of consumers to reduce its N3.3 trillion ($2.6 billion) cost, part of a series of reforms to ease pressure on public finances, still quoting Onanuga.

Onanuga said the government was under pressure to allow a price increase in the electricity sector as it only budgeted N450 billion  for the subsidy this year.

He did not say when the tariff increase would come into effect, but said that when it did the government expected to save close to N1.1 trillion per year.

Nigeria last reviewed electricity tariffs in 2020, Onanuga said, adding the proposed increase would help businesses recover costs and boost investment.

“With the huge subsidy burden and high cost of gas … the current electricity tariff is not realistic,” Reuters quoted him as having said.

Tinubu embarked on Nigeria’s boldest reforms in decades last year after he scrapped a popular but costly fuel subsidy and allowed the currency to devalue sharply.

The reforms Tinubu hopes will revive growth in Africa’s biggest economy have stoked inflation to more than 30 percent and worsened a cost of living crisis, angering workers.

Onanuga, the Reuters report stressed, said the government would consider helping generating companies to offset around N1.5 trillion of debt owed to the country’s bulk electricity purchaser.

Emmanuel Addeh

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