In what can be regarded as a long awaited decision, the Federal Government through the Nigerian Electricity Regulatory Commission (NERC) hiked the tariff payable by power consumers across the country. According to local media houses, the government disclosed the cost-reflective tariff of each of the Discos in a regulatory instrument cited as the 2016-2018 Minor Review of Multi-Year Tariff Order 2015 and Minimum Remittance Order for the Year 2019.
Local media houses who had access to the documents revealed that beginning from next year, power consumers will have to pay an additional sum of between N8/kwh and N14/kwh of energy provided by their respective distribution companies. Since the conclusion of the privatization process that took place in 2013, Discos have remained the weakest link in the electricity value chain, as they have been grappling with enormous operational challenges.
The most obvious has been the perennial issue of the absence of cost-reflective tariffs, a condition that has hindered their ability in fulfilling their financial obligations to the Nigeria Bulk Electricity Trading (NBET) company, leading NBET to default on its contractual obligation to the Generating Companies (Gencos). The overall impact is that the power sector has continually suffered a cash crunch, forcing the government to inject funds in order to avert a total collapse.
Despite a series of government interventions, there has not been a significant improvement in the supply of power across the country. While we applaud this move as a major step towards resolving the liquidity crisis that has hinder the operating efficiencies and financial viability of the Discos, uncertainty as to whether the revised tariffs are indeed cost-reflective dims our optimism on whether this will bring to an end the liquidity squeeze in the power sector.
Although we acknowledge that the challenges in the nation’s power sector run across the entire value chain, we believe the distribution companies remains the weakest link, hence we think the minor review of the MYTO should bring respite for the Discos, who have been described by the ministry of Power as ” technically insolvent”.