Electricity Consumers in Nigeria Need to Pay Higher Tariff – World Bank

Electricity Consumers in Nigeria Need to Pay Higher Tariff – World Bank

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David Malpass, World Bank President

The Federal Government has borrowed a total of ₦1.3 trillion since 2017 to ensure that power generation companies (Gencos) and gas suppliers received enough payments to continue generating electricity, the World Bank has said in its ‘Resilience through Reforms’ report, published recently.

According to the report, the power sector in Nigeria will cost the Federal Government an additional ₦3.08 trillion through 2023, if current performance levels and low tariffs persist.

Even though all the six Gencos, and eleven distribution companies (Discos) have been privatised, the Federal Government through the Nigerian Bulk Electricity Trading Company buys electricity from the Gencos and independent power producers before reselling to the Discos, the bank said.

The report noted that the government, through the Nigeria Electricity Regulatory Commission, (NERC) regulates tariff in the sector rather than allow market forces to determine it. It added that the Transmission Company of Nigeria was still strictly government-owned.

Nigerians pay less than the cost of production for electricity, the report said, adding that this resulted in revenue shortfall.

From 2015 through to 2019, the FG paid ₦1.68 trillion as cumulative tariff shortfall, it said, adding that because of foreign exchange depreciation and rising domestic inflation, tariff shortfalls had also been on the rise. The bank said, “Every Nigerian who receives electricity from a Disco pays less for electricity than the cost of supplying it.

“However, 80 per cent of the spending on tariff shortfalls benefits the richest 40 per cent of the population; only eight per cent benefits the bottom 40 per cent, and of this, less than two per cent benefits the poorest 20 per cent.

“Significant resources spent on funding tariff shortfalls disproportionately benefit the relatively wealthy who have access to the grid and use more electricity so that ultimately, a big chunk of government support goes to those who do not really need help with paying bills.”

The report said that 43 per cent of the population, that is, 85 million people lacked access to grid electricity, making Nigeria the nation with the world’s largest energy access deficit.

According to the report, there are over 22 million gasoline generators that power about 26 per cent of all households and 30 per cent of Micro, Small and Medium Enterprises in the nation, adding that the generating sets generated eight times more electricity than the national grid. The report noted that Nigerians spent about ₦3.7 trillion on the purchase and operation of generating sets in 2018 and that inhalation of smoke from the sets was linked to about 1,500 deaths annually.

Every year, Nigeria loses between ₦7 trillion and ₦10 trillion annually to unreliable electricity supply, the report said, adding that this was about five to seven per cent of the Gross Domestic Product of the nation.

It said Nigeria had about 12,500 MW of installed capacity, dominated by natural gas, 88 per cent, with hydro making up the rest. In 2020, over 51 per cent of this capacity was not available due to maintenance and repair work, it said. Of the 6,158 MW that was available, an average of just 4,087 MW was available for generation, because of both insufficient gas supply, transmission and distribution constraints, and the inability of Discos to purchase power, it added.

Power infrastructure

According to the World Bank, distribution network losses were also quite high: The Discos delivered only 75 per cent of the electricity they received, losing 7,656 GWh to poor infrastructure and theft. Thirty-two per cent of electricity was lost during transmission and distribution.

In 2020, Discos billed 22,163 GWh of electricity to their customers (60 per cent of whom were not metered). Ideally, this should have generated ₦816 billion in revenue for the Discos, but they were only able to collect ₦542 billion as revenue, the report said.

In July 2020, the FG launched a ₦23 trillion Nigerian Economic Sustainability Plan to assuage the effect of the COVID-19 pandemic on the economy, the report recalled. The bank said economic recovery was only possible when there was access to electricity, leading to sufficient power supply, and a financially viable power sector.

According to the World Bank, Nigeria needs to connect 500,000 to 800,000 households every year to achieve universal access to electricity by 2030, stressing that the government has to show real commitment to start turning around the power sector by taking the critical actions it set out in its Power Sector Recovery Programme more seriously.

It said, “The FGN has targeted reducing new tariff shortfalls from ₦502 billion in 2020 to less than ₦300 billion in 2021 in its PSRP Financing Plan as it moves the power sector towards full cost recovery and a fair electricity pricing policy – the transition to service-based tariff and the increased payment.

 

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