Here are the positive and negative effects of electricity tariff hike in Nigeria


BY MUHAMMAD M. ALI, JULY 06, 2023 | 04:16 PM

As President Bola Ahmed Tinubu continued to weigh option on whether or not to assent proposal for the increment of electricity tariff by 40% by the Nigerian Electricity Supply Industry, NESI, many Nigerians are yet to come to terms with the implication of such proposal.

In this report, YERWA EXPRESS NEWS looked at the implication of such increment on Nigerians. From review of expert’s opinion and other contents on the subject matter, while it is anticipated for the development to toughen cost of living, it learned that the tariff increment can also be positive for the Nigerian economy.

The new tariff proposal which followed a review of the Multi Year Tariff Order, MYTO, it was scheduled to commence July 1, but has been delayed, as President Bola Tinubu weighs his options.

The Multi Year Tariff Order are set of rules for tariff regulations by Nigerian Electricity Regulation Agency. The order gives room for electricity tariff to be reviewed every six months (minor review) and for five years (major review).

The review depends on exchange rates to dollar because the industry buys gas with dollar to generate the electricity.

This year’s tariff review has become complicated due to the recent floating of Naira against the dollar by the Nigerian government, which raised exchange rates from about N441/$1 to N750/$1.

Thus the industry argued it is running at loss, alleging deficit of N208.78 billion even last year.

The proposal of 40% increment by the industry means increment of about N37 on price of a unit of electricity in the country which is sold at N67.

By this, it means Nigerians will be buying 100 units at about N10, 000 as against N6, 700.

As Nigerians await the final decision of government on this, YERWA EXPRESS NEWS learned that the following will be the several implications of the tariff increment on various stakeholders and sectors of the economy:

Negative Implication – increase in cost of living and higher operational cost for industries and business

Reports have shown that the higher electricity tariffs can increase utility bills for households, leading to a rise in the cost of living. This would affect low-income households the most, as they would have to allocate a larger portion of their income to pay for electricity.

The Nigerian industries and businesses whose operation relied on electricity will face higher operational costs. This could lead to reduced profit margins, potential job losses, and a decrease in investments in the affected sectors. Small and medium-sized enterprises (SMEs) would be particularly vulnerable to these increased costs.

As businesses face higher production costs, they may pass on these expenses to consumers through increased prices for goods and services. This could lead to a general rise in the cost of living, impacting overall inflation levels.

Positive implication - energy conservation, efficiency and high government revenue

The higher tariff is not only going to affect Nigerians negatively but also positively. With higher tariffs, consumers may become more conscious of their energy usage, leading to greater efforts in energy conservation and efficiency.

This could encourage investments in renewable energy sources and technologies, as consumers seek alternative, more cost-effective ways to meet their energy needs.

The increment in electricity tariffs may also generate additional revenue for the government, which can be used to improve the power sector infrastructure, invest in renewable energy projects, and expand electricity access to underserved areas.

However, it is essential for the government to ensure transparency and effective utilization of these funds to address the long-standing issues in the power sector.

It is worth noting that the specific implications of an electricity tariff increment will depend on various factors, including the existing electricity infrastructure, the structure of the tariff system, the level of competition in the energy market, and the ability of the government to mitigate potential negative effects through targeted interventions and policies.

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