Proposed hike in Electricity tariff

Must Read

List of Guaranty Trust Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number which usually identifies both the bank and the branch where an account is...

Midea Showrooms And Stores In Nigeria

If you’ve been wondering where Midea showroom and stores are in Nigeria below is a list of Showrooms and...

TAJBank Launches Nigeria’s 2nd Non-Interest Financial Institution (Photos)

Abuja Nigeria   December 2nd 2019, TAJBank, Nigeria’s second Non –Interest financial institution, has announced the launch of its services...
- Advertisement -
- Advertisement -

The Nigerian Electricity Regulatory Commission (NERC) has proposed an upward review of the existing multi-year tariff order (MYTO) in the country. It is proposing that from 2020, power consumers in Nigeria will be charged an additional sum of N8-N14 for every kilowatt-hour of power. The long-term objective is to achieve a cost-reflective tariff.

Nigeria is not alone (African countries and their electricity price)

Proposed hike in Electricity tariff

The impact of the proposed hike in electricity tariff on corporates, consumers and investors are mixed.

Advantages

Economic theory implies that the price of any commodity is at equilibrium when its supply
equals demand. Any price above the equilibrium price results in a gap. This gap leads to distortions in the market as well as macroeconomic inefficiencies.

Currently, electricity tariffs in Nigeria are priced below the equilibrium price. This explains why the supply of electricity is not enough to meet the demand of the same. A move to a more cost-reflective tariff and an efficient pricing mechanism will encourage investment in the power sector. This, in turn, would create more jobs and improve the sector’s growth rate.

Read:  NERC Issues Meter Installation Permits to Eko, Kaduna DisCo’s MAPs

Disadvantages

The proposed policy could easily become another challenge for the Nigerian consumer in the coming months and not just in terms of the increased price. The trickle-down effect of the hike could be inflationary. The rise in electricity tariffs without a corresponding increase in power supply would translate to a notable rise in the operating costs of corporates. The price burden is then passed to final consumers, leading to a rise in inflation.

Other issues to address in the power sector

The entire electricity value chain (generation, transmission and distribution) in Nigeria is saddled with challenges. The issues include:

Read:  HEINEKEN AFRICA FOUNDATION AND NIGERIAN BREWERIES DONATE TO LUTH

Low capacity of the Transmission Company of Nigeria (TCN): Power generated is not
power transmitted. The newly signed deal between Nigeria and Siemens to generate
25,000Megawatts of electricity by 2025 will have minimal impact if the average Nigerian
does not receive half of the power generated. Challenges such as inadequate funding, suboptimal gas supply and poor infrastructure facilities have to be addressed to improve power transmission.

Read:  CURRICULUM VITAE (CV) LIES THAT MAKE EMPLOYERS SUSPICIOUS

Debt overhang: Total exposure of the sector to the banking system is in excess of N1.20
trillion. This represents 5.54% of aggregate industry loans and 9.78% of total deposits. An
increase in tariffs would improve the cash flow of the Disco’s as well as reduce their debt
service burden. It will make the sector more viable and improve the cash flows of the operators by increasing their operating margins. If the government goes further by offering some debt forbearance, this will go a long way in fortifying the balance sheets of the banks and reduce their non-performing loans to total loans ratio. This ratio was put at 9.36% when the CBN governor addressed the media after the last MPC meeting in July. It is expected that any support and improvement at the fundamentals of the industry will attract additional investments and restore solvency to the industry.

The following is an excerpt from Financial Derivatives Limited, titled Economic Bimonthly Update

- Advertisement -

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Latest News

Nestlé USA launches meatless pizza and lasagna with Sweet Earth Awesome Grounds

Meatless is going mainstream, as two of America's beloved brands are getting even more awesome. Nestlé is launching new...

Japan’s Food Business Giant Watami Deploys Infor Cloud ERP for Business Standardization and Decision-making

Multi-tenant cloud solution includes data-driven management BI for costings and production planning TOKYO, JAPAN - Media OutReach - 5 December 2019 - Infor, a global leader in...

Chart of The Week: Global Carbon Emissions Are On The Rise Again

After good progress at the beginning of the decade, global carbon emissions have started to pick up again. This recent trend sets the world on...

Taraba Launches Highland Tea In Lagos Market

The Mambilla Beverages Nigeria Limited, a subsidiary of the Taraba Investment and Properties Limited (TRIP) has unveiled Highland Tea and Green Tea, launching it...

More Articles Like This