Given the severe liquidity crunch affecting the power sector, with an estimated tariff shortfall of ₦1.7 trillion between 2015 and 2019, analysts at Afrinvest see this much-awaited review as positive for the various players in the value chain.
“The Discos are burdened with overdue obligations due to poor collections, which has hampered investments and the development of the sector”, they said.
This largely reflects high Aggregate Technical and Commercial Collection (ATC&C) losses which stood at 44.5 per cent on average as at second quarter of 2019. On the technical side, losses have been caused partly by poor infrastructure and maintenance. On commercial losses, weak tariffs, poor metering, meter bypass, among others, are responsible.
“We believe a blend of cost-reflective tariffs and much improved metering from the current average level of 42.9 per cent would improve collections and in turn investment across the value-chain. However, the exclusion of certain customers means that progress would be slower than expected” they added.
They expect the new tariff regime, if implemented, to put pressure on consumer prices as higher energy costs would translate to rising cost of production for businesses and weak purchasing power for consumers. But on a positive note, the gradual implementation of the increase in tariff would help consumers better adjust to the new pricing regime.
Following the updated Multi-Year Tariff Order (MYTO) as at year-end 2019, the Nigerian Electricity Regulatory Commission (NERC) approved an upward review (starting January 1, 2020) of electricity tariffs paid by consumers across the country. The adjustment was in line with the bi-annual review provided in the MYTO 2015 (as amended). The new update covers an estimated tariff shortfall of ₦534.4 billion for 2020, which the government would cover. Hence, implementing the recommended tariff change would ease the burden of electricity subsidies on government’s finances.
