AGAINST the backdrop of the recent reversal of the new electricity tariff take-off,, the World Bank has indicated that Nigeria’s electricity tariff shortfall would rise by 56.9 per cent to N822 billion in 2023 from N524 billion in 2020.
Tariff shortfall is the difference between allowed tariffs and cost-reflective tariffs, which the Federal Government is responsible for funding. Government’s inability to pay the shortfalls over time has in a liquidity crunch on the industry.
This comes as electricity distribution companies, DisCos, put their estimated revenue loss arising from postponement of the new tariff regime at N380 billion in the next six months.
In view of the Coronavirus (COVID-19) pandemic, the Federal Government hadput on hold the tariff increase it earlier approved for the DisCos, ordering them to put the increase of their tariff on hold till the first quarter of 2021.
In its report, “Programme-For-Result Financing Power Sector Recovery Programme (PSRP), Final Report Environment and Social Systems Assessment (ESSA)”, obtained by Vanguard, the World Bank projected increases in the shortfall at N606 billion and N768 billion in 2021 and 2022 respectively, before hitting N822 billion mark in 2023.
It stated: “Power sector shortfalls are rising and are fiscally unsustainable. From 2015 to 2019, it increased significantly as allowed tariffs stayed flat while the cost reflective tariff increased due to foreign exchange depreciation and inflation.”
In the first half of this year, H1’20 alone, the Naira depreciated by 6.2 per cent while inflation rose to 12.4 per cent from 11.98 per cent, both escalating the cost of delivering electricity to consumers.
Meanwhile, according to data obtained from the Nigerian Electricity Regulatory Commission, NERC, the 11 DisCos operating the nation’s electricity distribution network, were expected to generate N63.3 billion monthly from the increased tariff, which amounted to N380 billion between July-December, 2020.
According to industry operators, part of the amount was expected to assist in funding capital projects, including procurement and installation of new transformers, maintenance of infrastructure and provision of pre-paid meters, all required to deliver additional power to consumers. The projects are now be suspended until the new tariff regime can be implemented.
Our findings, by World Bank
On how it conducted the research leading to its report, the World Bank stated: “Formal and informal stakeholder consultations have been an integral part of the ESSA process during the project preparation phase. For preparation of the ESSA, bank specialists undertook a series of meetings and engagements with various stakeholders, including federal agencies, development funding partners and technical experts aimed at information gathering and risk analysis.
“What follows are the key issues that emerged from the formal consultations with Federal Government representatives, electricity distribution and generating companies and a large representation of NGO and CSO organisations. A virtual public consultation for the ESSA was held on May 7, 2020.”
On the implication of this development, the World Bank stated: “The government has been directing fiscal resources to keep the electricity running but those resources have primarily benefited the wealthy. Moreover, because of scarcity of funds, as a result, public expenditures on primary health care, basic education, rural roads and other public goods that benefit the poor and represent investments in Nigeria’s children (and its future) have suffered.
“The point of this operation is to help turn around the power sector and set it on a fiscally sustainable path, and this is particularly urgent at a time when the government needs all the fiscal resources it can marshal to help protect lives and livelihoods.
“Of course, the priority of the government ought to be and has been to ensure that the poor and low income are not hurt by this, and in fact, what NERC is proposing should cap the impact on the poorest customers. But keep in mind that two thirds of the poorest 40 percent do not have access to grid electricity.”