Electricity tariffs expected to increase this year: The state of Nigeria’s power sector

The Nigerian Electricity Regulatory Commission (NERC) recently announced an impending increase in electricity tariffs set to take effect by the first of April this year. This development comes after the conclusion of a minor review of the multi-year tariff order of 2015 and the minimum remittance order for 2020. To shed more light on the state of Nigeria's power sector, George Etomi, Director at Eko Electricity Distribution Company, joined CNBC Africa's Kenneth Igbomor for an insightful interview. Etomi highlighted the importance of privatization in the power sector, emphasizing the need for robust regulation supported by industry-specific policies. He noted that in recent times, industry players have exhibited better cohesion in addressing their challenges, with improved communication across the value chain from gas production to generation and distribution. The collaboration within the sector has been a significant development, as stakeholders now recognize the interdependence required for a functioning system. One of the pivotal occurrences in 2019 was the government's engagement with the Siemens Initiative. Etomi commended the government for acknowledging the necessity of continuous investment in the industry, particularly in enhancing network infrastructure to accommodate existing generating capacity. The Siemens Agreement, which involved partnership with Siemens, JAN, Discos, and the transmission company, aims to bolster the sector's efficiency and reliability. The Director highlighted the role of regulators in setting industry standards and targets for distribution companies (Discos) based on their operational efficiencies. The assessment includes criteria such as reducing aggregate technical, commercial, and collection losses, with each Disco assigned specific reduction targets. These targets, in turn, influence the tariff structure, which comprises various components including the cost of gas, exchange rate fluctuations, and transmission challenges. Exchange rate volatility has been a significant challenge for Discos, with discrepancies between official rates and actual procurement rates impacting operational costs. Furthermore, the aging grid infrastructure and occasional total grid collapses have added to the industry's operational hurdles. Etomi underscored the financial strain on Discos, exacerbated by selling electricity below cost due to government obligations and outstanding debts from government ministries and agencies. Regarding the impending tariff increase, Etomi acknowledged the potential consumer backlash and emphasized the importance of consumer education and engagement. He urged for a shift from a confrontational stance to a collaborative approach with consumers, highlighting the mutual benefits of improved service delivery and reliability. While acknowledging consumer concerns about tariff hikes, Etomi stressed the need for transparent communication and demonstration of value to justify the adjustments. In conclusion, Etomi recognized the enforcement challenges in implementing the new tariffs and highlighted the need for continuous dialogue and consumer involvement in shaping the power sector's trajectory. He emphasized the role of enlightened consumers in understanding the broader implications of tariff adjustments and the collective responsibility in ensuring a sustainable and efficient power sector in Nigeria.