Manufacturers and organized Labor have opposed the 240% increase in electricity prices imposed by the Federal Government on users who receive 20 hours of power supply.
They are pushing for the electricity subsidy to continue, cautioning that removing it would force manufacturers out of business and worsen inflation.
The subsidy on electricity has been completely removed from the tariff paid by power consumers in category A, which makes up about 15% of all power users in the country.
The government announced the increase in the electricity bill during a press briefing in Abuja by NERC, stating that affected users will now pay N225 per kilowatt-hour, up from the previous rate of N68/kWh, marking a 240% increase. The decision took effect from Wednesday (yesterday).
But the private sector, Nigeria Labour Congress, and the Trade Union Congress have all opposed the higher tariff for power users, regardless of their category.
They argue that raising the tariff will force manufacturers out of business, increase inflation, and suffocate small and medium businesses, pointing out that nowhere in Nigeria receives up to 20 hours of power supply daily.
Band A power users receive up to 20 hours of electricity daily and used to pay about N68/kWh before the new order by the Federal Government through NERC.
The Vice Chairman of NERC, Musiliu Oseni, informed journalists in Abuja that the government cannot continue to subsidize electricity and had to find ways to reduce the about N2.9 trillion that would be spent on power subsidy this year.
He clarified that Band A customers represent 15% of the more than 12.82 million registered electricity consumers in the country, and mentioned that the commission had downgraded some customers in this category.
Discos feeders downgraded
Oseni stated that some Band A customers were downgraded to Bands B and C due to not receiving the required hours of electricity from power distribution companies in their respective franchise areas.
He explained that NERC discovered this after using technology to determine the level of power supply from the Discos' feeders meant for Band A power users.
“And on that basis, the commission has decided that many of the feeders that the Discos claim to be Band A feeders do not provide the Band A service, so the feeders have been immediately downgraded to protect consumers.
“We have over 3,000 Discos feeders. There are over 875 Band A feeders, but after reviewing their performance, the commission has reduced the number to under 500, which now qualify as feeders that meet the 20-hour average service.
“So when you look at that in relation to the over 3,000 feeders we have, it shows that only 17% of the total feeders of the distribution companies are currently qualified as Band A feeders.
“And when you look at where those 17 per cent feeders critically, it is estimated that just under 15 per cent of customers are benefiting from them, or are currently connected to those feeders, meaning that we have 17 per cent of the total distribution feeders or less than 15 per cent of customers currently benefiting from the service,” Oseni stated.
He emphasized that based on this, “the commission has decided that only the 17 per cent feeders and less than 15 per cent customers will be affected by any rate increase that the commission will approve for the distribution companies.
“Therefore the commission has issued an order, which is titled April 2024 Supplementary Order, which is supplementary to the order issued in December 2023 effective January 2024.
“So the April Supplementary Order takes effect from today and in that order, the commission has approved a rate review of N225/kWh for just under 15 per cent of the customer population in NESI. So that means that less than 15 per cent of the customers will be affected.”
He further pointed out that many customers previously classified as Band A power users would not be affected because they hardly get a daily average power supply of up to 20 hours.
Oseni said consumers affected by the latest tariff hike would now have to pay their power bills in full by themselves, as the applicable subsidies on Bands B, C, D, and E would not be enjoyed by them.
He remarked that these Band A customers had almost all the facilities necessary for the supply of electricity to their domains for 20 hours daily.
He, however, noted that about 20 per cent of these Band A customers were not metered, and explained that they would now receive a high concentration in terms of metering by the Discos.
“This, however, does not mean that customers in other bands have been neglected, no. Rather, the Discos will have to provide meters to this category of Band A customers fast, since their tariff is now N225/kWh,” the NERC vice chairman stated.
On the effect of subsidy in the sector, Oseni said it had been affecting the payments being made to power generation companies, adding that this “led to a situation whereby the Gencos were unable to make payments for gas.
“That also resulted in the reduction of gas supply for power generation because there is competitive demand for gas. You have so many other companies that require gas and can pay for it.
“So these issues have compounded the performance of the sector and that led to the dip in power generation that we experienced recently.”
He further noted that the recent increase in the price of gas for power generation from $2.28/mmbtu to $2.42/mmbu also warranted a hike in the cost of tariff, particularly for Band A customers.
Labour kicks
However, the NLC described the decision of the Federal Government to hike the electricity tariff as insensitive and callous.
The NLC’s spokesman, Benson Upah, made this known in an interview with one of our correspondents.
He said, “The government’s decision is not only insensitive, it is callous. It further pauperises consumers, especially workers whose wages are fixed and insufficient.
It also makes the working environment more unfriendly for manufacturers with the potential for a very large increase in the cost of goods and services or, in the worst case, more closures and loss of jobs.
The only people who stand to benefit from this senseless social violence against the people are the World Bank and IMF (International Monetary Fund).
In response, the Trade Union Congress stated that the Federal Government was only focused on making money at the expense of the citizens' well-being and survival.
The TUC’s Deputy President, Tommy Etim, said, “The government is being insensitive to the hardships of citizens. I believe they prioritize making money at the expense of the citizens' survival. Let me emphasize that the increase in the electricity price from N66/kWh to N225/kWh for those who have electricity for 20 hours per day is not acceptable and could lead to individual unrest.
“This clearly indicates that Nigeria is not prepared for 24-hour electricity supply. Currently, no one in Nigeria enjoys 20 hours of electricity supply, not even at the airport where it is crucial for economic reasons. I think that the government has made a mistake again, especially during this time of socioeconomic challenges where the cost of living is very high and workers' salaries remain unchanged.
Also responding to the situation, members of the organized private sector stated that the increase would result in job losses, higher operating costs, and inflation, among other challenges.
The President of the Lagos Chamber of Commerce and Industry, Gabriel Idahosa, mentioned that companies would begin laying off workers.
“Well, companies that can't handle the situation will experience losses, but it's too early to make specific predictions in terms of percentage. We hope that members will reassess their projected operating costs and consider the level of losses they can manage or the reduction in profits they can tolerate.
“As a result, they will need to make decisions about downsizing operations to minimize their losses, which may involve letting people go. They may also try to raise prices for products with high demand. But the main point is that many of our members will likely experience more losses or reduced profits. That's the primary concern,” Idahosa explained.
He added, “They may choose to let go of non-essential staff. Many companies are now turning to part-time, offsite, and temporary employment, as well as outsourcing jobs instead of hiring full-time workers. So we will see a loss of full-time jobs, part-time jobs, and even a stop in hiring.”
Idahosa stated that the change would quickly increase the operational cost of LCCI members.
Additionally, the Head of Corporate Affairs at the Small and Medium Enterprises Development Agency, Moshood Lawal, stated that the increase in tariff would necessitate a higher rate of running businesses.
“It is already happening now. Small businesses are already facing a high rate of running their operations. So this will lead to even higher business running costs and a rise in the prices of goods.
The speaker is hopeful that their businesses will survive because they have learned to be resilient over the years. They teach others to build the cost of running a business into the final cost.
Francis Meshioye, the President of the Manufacturers Association of Nigeria, called the development “unpleasant” but mentioned that the body would issue a statement about it.
Dele Kelvin Oye, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, cautioned that the new electricity tariff increase would result in higher business costs.
In a statement, he noted that the tariff hike, influenced by the rise in natural gas base prices, has implications for the cost of operations across businesses facing a fragile economic recovery. He also commended the commission’s efforts to enhance metering and protect consumers from over-billing.
The organization understands the need to align energy costs with market realities to encourage sector investment and sustainability. However, they emphasize the importance of considering the broader economic impact on industries and the timing of such adjustments.
The NACCIMA continues to push for a transparent and gradual approach in policy implementation, highlighting the need for broad stakeholder engagement to mitigate adverse effects on business competitiveness and consumer prices.
The Centre for the Promotion of Private Enterprise, in a statement signed by its Chief Executive Officer, Muda Yusuf, stated that the power sector issue had become a major challenge in the economy.
They added that while tariff review was inevitable, a 300 per cent increase all at once is difficult to justify.
The organisation pointed out the major funding and liquidity crisis posing a significant risk to investments in the electricity value chain.
They also highlighted rising costs across the chain due to multiple macroeconomic headwinds and the insufficient liquidity to offset the rising costs.
The centre argued that fundamental issues need to be addressed in the electricity value chain beyond tariff hikes, particularly technical and commercial losses.
These issues, it claimed, include technical and commercial losses that have yet to be tackled.
They also raised concerns about inefficiencies costs that consumers are expected to pay for as part of the cost recovery argument, which amount to billions of naira.
They also mentioned the exploitative practice of estimated billing, emphasizing that millions of electricity consumers have yet to be metered.
Economists oppose the hike
Segun Ogundare, an economist and Managing Director/Chief Executive Officer of Intellectual Edge Services Lagos, expressed that the move was ill-timed and has a negative impact on the populace.
He cited increasing energy costs worldwide and the high consumption rate of electricity due to climate change and humidity, but stressed that the increment is ill-timed and burdensome given the current socio-economic situation in the country.
The government may say it only applies to Band A, but it will definitely affect the final consumer. It all comes down to the fact that our government needs to find a way to improve the economic difficulties.
Ogundare, who is also a lecturer at the Ajayi Crowther University, Oyo State, added, “Everywhere in the world, there is subsidy for agricultural products and energy.
“If you are raising the energy tariff now, what are you subsidizing for the people? Yes, the increase doesn't affect everyone, but those who are affected would pass on the effect to others. At this point, for me, it is not acceptable.”
An economist with the School of Management and Social Sciences, Pan-Atlantic University, Prof. Bright Eregha, also expressed similar feelings.
Another economist at Lotus Beta Analytics, Shadrach Israel, said the government should be prepared to hear more complaints from the already poor citizens.
“I heard the news of the electricity subsidy removal and I was shocked that the government would consider such a move at this time. No one is complaining yet, and I still wonder why. I believe that when the new rate takes effect, we will start to hear complaints from the people.
“This move is too early and the government should have considered an alternative to energy for production instead of just removing the subsidy,” he said.
Additional reports by
Oluwakemi Abimbola, Edidiong Ikpoto, Josephine Ogundeji and Daniel Adaji Manufacturers and organized Labour have opposed the Federal Government’s 240 percent increase in the tariff payable by electricity users enjoying a 20-hour power supply. They insisted on the electricity subsidy, warning that its removal would force manufacturers out of business and worsen inflation. The subsidy on electricity has been completely withdrawn from the […]
