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Promoting Fair and Reasonable Pricing of Electricity - Statement by Dr. Sam Amadi – Chairman/CEO at a Press Conference by the Nigerian Electricity Regulatory Commission, Monday, 15th July, 2013

The Nigerian Electricity Regulatory Commission (NERC) has noted the comments of Nigerians on the recent increase in the fixed charges for some class of customers, including a story in today’s ThisDay attributing comments to the President of the Nigeria Labour Congress, Comrade Abdulwaheed Omar, that centred around a purported arbitrary increase of an unstated and undefined charge from =N=225 to =N=700 Questions have been asked as to why such ‘increase’ at this time and the rationale for charging fixed charges for electricity consumption.

As a responsible regulator we are committed to respond to the concerns raised by consumers in print and electronic media and through social media. We consider it of utmost importance to always explain to the consumers that the tariffs they pay are fair, reasonable and necessary to guarantee continuous improvement in electricity supply to Nigerian homes and businesses.

Has NERC Increased the Tariff Again?

NERC wants to make it clear that since 1st June 2012 when the second edition of the Multi Year Tariff Order (MYTO 2) came into force, it has conducted two Minor Reviews and published its findings on 1st December 2012 and 1st June 2013, as required by the law. A Minor Review under the Multi-Year Tariff Methodology published by NERC in 2012 involves an examination of interest rates, exchange rates, inflation rates and available generation capacity during the preceding 6 months; and if these report a change of plus or minus 5% individually, such change will be applied to the tariff published for each distribution company.

The two Minor Reviews conducted by NERC did not result in any increase of tariff because the indices stated above and the fundamentals of the MYTO, as shown in the Methodology and the financial model available published in full on NERC’s website have not significantly changed. We must state that the commencement and results of both Minor Reviews were announced via various national print and electronic media, including some that have carried various provocative statements that bear absolutely no connection with the truth.

The changes that some customers have belatedly noticed in their electricity bills were announced by the commission on 1st June 2012.  The MYTO stipulates tariffs for the 5-year period from 1st June 2012 to 31st May 2017 based on the expected cost of generating, transmitting and distributing the electricity for homes and businesses during these years. This means that the tariff order issued to every distribution company has an approved tariff for 2012, 2013, 2014, 2015 and 2016. Except there is a Minor Review of the MYTO, which takes place semi-annually, with results announced on 1st December and 1st June each year, each distribution companies is authorized to collect only the approved tariff announced by NERC. An examination of the tariff tables for the respective eleven (11) distribution companies that were nationally published last year shows all the tariffs for the period 2012 – 2017. The total electricity tariff paid by all consumers in Nigeria comprises a single monthly fixed charge and a variable energy charge that is based on consumption.

It must be made clear that for residential customers who use either single-phase meters or three-phase meter (R2), the fixed charge approved under MYTO is N500 for 2012 and N700 for 2013. Accordingly, on 1st June 2013, their fixed charge changed from N500 to N700 as prescribed in the MYTO. This happened without any further action from the commission.

NERC is committed to the highest standards of accountability and transparency. The MYTO was designed and executed with utmost transparency and full participation of relevant stakeholders. Several public hearings and consultations were organized in Abuja and Lagos to afford consumers and other stakeholders the full opportunity to participate in tariff setting, which many stakeholders took advantage of. In addition, NERC arranged and held special meetings with those organized groups, including residents associations, estate developers, small and medium scale enterprises, industrial and commercial interest groups and trade unions that reciprocated our genuine effort to engage with them. We note that, particularly, the Chairman of NERC made a comprehensive to the leadership of the Nigerian Labour Congress in Jos, Plateau State. 

The financial and technical assumptions of the MYTO were validated by relevant public and private institutions, including acclaimed experts and academics. The two Minor Reviews so far conducted have confirmed the soundness of the Commission’s financial and technical assumptions and particularly the fact that as required by Section 76 of the Electric Power Sector Reform Act, Nigeria’s electricity tariffs enable operators to recover the prudent cost of their operations plus a reasonable return on capital.

The Need for Fixed Charge:

The MYTO has two components of tariff for most electricity consumers: the fixed charge and energy charge. In the past consumers paid for Meter Maintenance Fee. The Commission abolished the Meter Maintenance Fee (MMF) in 2011 to make tariff in the industry fair and reasonable. Fixed Charge is a component of electricity tariff all over the world. It is charged to recover some of the capital costs for producing and supplying electricity. In designing the fixed charge NERC ensured that very poor consumers on R1 are not charged fixed charge and that most of the residential consumers are subsidized. The fact is that the current =N=700 fixed charge for R2 residential customers actually recovers only a small fraction of the actual fixed cost of supply. As NERC stated in its Methodology, it permit the recovery of the full cost of the fixed charge only as significant improvements in quality of service are shown.

We agree with all stakeholders that we must ensure the success of the power sector reform. As a regulator we understand that the basis for any sustainable improvement in the networks is that we can attract investment to increase the generation capacity, transmission and distribution network. The reality, which we all know, is that without tariffs that cover the prudent costs of producing and supply electricity in the country there will be no such investment. The ultimate need of the consumers of electricity in Nigeria is that they have access to stable electricity. The objective of the tariff review in 2012 was to ensure cost recovery as a way of guaranteeing stable electricity in the nearest future.

We regret that the distribution companies have not been very committed to meeting their obligations in the MYTO. NERC recognizes that the quality of service has not seen significant improvement, especially in the area of metering and accurate billing of customers. We have responded with regulations to enforce correct billing of unmetered customers and the new CAPMI metering policy. We will continue to enforce these regulations and interventions to improve quality of supply before the preferred bidders take over the networks. Our expectation for significant and sustained improvements in electricity supply and quality of service lies in the expected take-over by the privatisation preferred bidders who have better incentives and commitment and have made enforceable promises to invest continuously in providing better services to consumers. These investments and commensurate improvements will not all be made in one day but over the coming months, years and decades following the entry of new investors and managers of our distribution companies.

Once again, we want to call on consumer groups and civil society groups to get more engaged with the work of the Commission. The Business Rules of the Commission allows any person aggrieved by the orders of the commission to file a proper petition for the review of the order upon proper consideration by the Commission. The small and medium enterprises utilized this provision to request NERC to review the fixed charge paid by small and medium enterprises. This review will shortly become effective. The NLC or any other organized consumer or civil society group can bring similar matters for the consideration of the Commission if they so wish and they will be given a full and fair hearing.

Let us work together to provide stable and reliable electricity to Nigerian homes and businesses. Thank you.

Maryam Yaya Abubakar - Assistant General Manager, Media