AEDC: fluctuation of naira exchange makes upward review inevitable
Electricity tariffs will rise from Saturday despite the caution from Labour, manufacturers and consumers.
The indication came yesterday from one of the electricity distribution companies which announced that only a hike in electricity tariffs could keep it in business.
Other DisCos are expected to follow suit.
The Abuja Electricity Distribution Company (AEDC), which covers the Federal Capital Territory (FCT), Niger, Kogi and Nasarawa states, attributed the review to the fluctuating exchange rate.
The AEDC covers 133,000 square kilometres.
In a statement yesterday, the distribution company said the upward review became inevitable because of the fluctuation of the naira in the exchange rate market.
At the close of business last week, the naira traded at N756 per dollar at the Investors and Exporters (I&E) Window.
The development followed the floating of the naira by the Central Bank of Nigeria (CBN) and its subsequent directive to commercial banks to sell forex freely at market-determined rates.
It was the first time in years that the local currency would be allowed to trade at a rate determined by market forces.
The AEDC statement reads: “Effective July 1st, 2023, please be informed that there will be an upward review to the electricity tariff influenced by the fluctuating exchange rate.
“Under the MYTO 2022 guidelines, the previously set exchange rate of N441/$1 may now be revised to approximately N750/$1 which will have an impact on the tariffs associated with your electricity consumption.
“For customers within bands B and C, with supply hours ranging from 12 to 16 per day, the new base tariff is expected to be N100 per kWh while bands A with (20 hours and above) and B (16 to 20 hours) will experience comparatively higher tariffs.
“For customers with a prepaid meter, we encourage you to consider purchasing bulk energy units before the end of this month as this will allow you to take advantage of the current rates and potentially make savings before the new tariffs come into effect.
“For those on post-paid (estimated) billing, a significant increment is imminent in your monthly billing, starting from August.”
Last week, an official of the Nigerian Electricity Regulatory Commission (NERC) official confirmed the ongoing review of the Multi-Year Tariff Order (MYTO).
But the official said a review could be upward or downward.
The official, who craved anonymity, said the commission has commenced the review and no one knows its outcome until the process is completed.
It said NERC will make public the decision from the review. The Commission was yet to fulfil that promise last night.
The commission has a mandate to carry out minor and major tariff reviews every six months.
The major determinants of the review are mostly inflation rate, exchange rate and the price of gas.
The last tariff review was in December last year. It was done quietly.
Consumers and operators in the Nigerian Electricity Supply Industry (NESI) have disagreed on the hike.
To the consumers, because the power supply in the country remains epileptic, there should be no tariff increase. But the NESI continued to push for a cost-reflective tariff.
Over the years, the Federal Government had frozen the tariff with different interventions from the CBN.
Payment of subsidy on electricity ended under the administration of former President Muhammadu Buhari.
Why manufacturers, Labour are kicking
MAN’s Director-General Segun Ajayi-Kadir explained the opposition of manufacturers and other private operators to the impending hike in tariff, pointing out that in the last eight years, electricity tariff went up by 186 per cent.
He said the government’s indebtedness of N75 billion in unpaid electricity bills underscored how burdensome the cost of electricity had become.
A statement by the MAN boss at the weekend said a higher electricity tariff will directly increase the cost of production for manufacturers.
The statement reads: “Already, we have energy constituting between 28-40 per cent in the cost structure of manufacturing industries.
“You can imagine the impact on manufacturing industries that are energy-intensive such as metal processing, heavy machinery, and chemicals manufacturing.”
Manufacturers’ profit margins, Ajayi-Kadir also warned, will reduce.
Also kicking against the tariff hike, the Nigeria Labour Congress (NLC) described the move as insensitive and callous, saying it reflected an organised indifference to the well-being of consumers.
NLC President Joe Ajaero registered the Labour Centre’s opposition in a statement in Abuja last Thursday.
The statement reads: “The plan to increase electricity tariff by 40 by July 1st is both insensitive and callous and reflects an organised indifference to the well-being of consumers, especially, the poor ones.
“The massive increase is explained away as a response to the over 100 per cent increase in the pump price of premium motor spirit (PMS).
“Details reveal a movement in inflation from 16.9% to 22.41 (threatening to needle 30), and a shift in exchange rate from N441 to N750.
“We believe not even these figures are a justification for this reckless proposed tariff increase.
“The issue of capacity to pay and quality of service delivery is not only germane but superior to any rationalisation by market logic.
“The service providers in spite of sundry support have not been able to meet the threshold of 5000 megawatts.
“Coupled with this, there have been surreptitious increases without notice in violation of statutes.
“The inherent risk in the new regime of tariff is that there is no control, implying that by August, consumers will pay new rates.
“The other risk is that by the time other products or service-rendering entities come up with their new prices or rates, the ordinary person would have been compacted into dust.
“We would want to advise apostles of the market who have called NLC all sorts of names to check their conscience.
“The rate at which they are going is highly combative and combustible. With the contemplation of payment of school fees in tertiary institutions and increases in privately-owned ones in addition to other costs/tariffs on the way, life in Nigeria could truly be Hobbesian.
“The market economies which the market fundamentalists seek to emulate have in place socio-economic safeguards which we do not have.
“In light of this, our advice is that this proposed tariff hike should be shelved for our collective safety.”