Monday, February 13, 2012

The cost of electricity in Nigeria goes up 88 percent

The federal government has completed plans to almost double the cost of electricity from April 1, 2012.

A kilowatt hour of electricity, which costs consumers N10 currently, will soon cost about N19, an increase of 88 per cent.

According to a report by the Financial Times yesterday, the new rates would be announced before the privatisation of the 18 power generation, distribution and transmission companies this year.

The newspaper quoted the federal government as saying that higher "cost-reflective tariffs" for residential and commercial electricity customers were necessary to ensure that investors could make profits.

Under the new pricing regime, tariffs will rise 25 to 88 per cent, though most customer classes will see a 50 per cent increase in their bills. The government hopes that cushioning the blow on the poorest consumers - a policy absent during the fuel subsidy removal - will ensure that there is no repeat of the public outcry.

"We are making sure that the urban poor and rural dwellers be provided a subsidy so that they don't see a significant increase in tariff," Bart Nnaji, the minister of power, told the Financial Times in an interview in Abuja. "The rest should be able to pay for it."

The chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi, confirmed the report in an interview with LEADERSHIP yesterday.

Amadi said, however, that not all customers would have their tariff increased by 88 per cent.

According to the NERC chairman, customers are classified based on energy consumption, the type of metering and cost of service.

He said: "When people upgrade and consume more power, their consumption level will spike and the distribution company will automatically migrate the customer to a higher customer class, and they will pay more."

Despite having large reserves of natural gas that can fire thermal plants, the country's electricity supply and service is among the world's worst, with half of the 160m population lacking access to the grid. Peak output is little over 4,000MW, with per capita consumption just 3 per cent of that of South Africa, Nigeria's rival for the continent's biggest economy.

Frequent blackouts mean that most of Nigeria's power comes from privately owned petrol and diesel generators, greatly increasing business costs and deterring potential investors. It is hoped that privatisation will greatly improve service and output, with the government targeting 18,000MW output by 2016.

The new tariff was calculated to reflect the real cost of supplying electricity, with a return of investment factored in, according to the NERC. This comes to about N23 per kWh, which Nnaji said was near the average price in Africa and less than half the cost of self-generated power in Nigeria.

The biggest consumers of electricity, wealthy individuals and businesses, will pay the highest rates, cross-subsidising the less well-off. The government will also provide a N60 billion subsidy this year, allowing the tariff for the poorest customers to be fixed at N3.3.


Related stories: Government to resuscitate dams for electricity generation 

Canada to invest in Nigeria's power sector 

President Goodluck Jonathan promises steady power before May 2015 

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