Amid hardship, Nigerian govt plans threefold electricity price hike

The Tinubu administration is planning a significant hike in electricity prices that will make Nigerians pay almost triple of the current rates.

Power companies will be authorized to raise electricity tariff to N200 per kilowatt-hour, Bloomberg reported Tuesday, a substantial jump from the current rate of N68.

The policy, to be announced within weeks, will promptly add to a devastating cost-of-living crisis millions are facing currently following the devaluation of the naira and the scrapping of petrol subsidy.

Presidential spokesperson Bayo Onanuga confirmed the government will cut electricity subsidy for 15% of consumers.

“With the huge subsidy burden and high cost of gas … the current electricity tariff is not realistic,” he said.

What the government thinks

• Reduce Subsidy Burden: The government hopes this price hike will lessen its subsidy burden. Currently, the government spends around N3.3 trillion annually to subsidize electricity costs.
• Boost Investment: The government also aims to incentivize investment in the electricity sector, which has been hampered by a lack of funds.
• Improve Efficiency: Eliminating price distortions, the government believes, will encourage more efficient operation within the power sector. Despite past privatization efforts, significant challenges persist.

Consumer Impact

A substantial price hike will put additional strain on households, considering the already-high inflation rate in Nigeria.

The government said the new rate will be imposed only on urban consumers, which the government claims represent 15 percent of the population but consume 40 percent of the nation’s electricity.

“Electricity is hurting”

Nigeria faces persistent power shortages more than a decade after the state power company was broken into 11 distribution companies and six generation firms and sold to private investors.

Despite the privatisation, the government through the Nigeria Electricity Regulatory Commission continues to set prices, and pays the difference as subsidy to companies in the sector.

But private entities have long complained that the arrangement, in which the government often delays in paying the subsidy, limits them from charging a cost-reflective price to improve their finances, and deliver quality service.

On Monday, the Nigerian Midstream and Downstream Petroleum Regulatory Authority increased the price of natural gas which is used to generate more than 70% of electricity in Nigeria. Power companies will now pay $2.42 per one million British thermal units from the previous rate of $2.18 MMBtu.