Power distribution companies (DisCos) in Nigeria face billions in collection losses as manufacturers decide to pay the old tariff rates instead of the new rates approved by industry regulators.
The Manufacturers Association of Nigeria (MAN) has instructed its members across the country to continue paying the previous rate of N66/kWh to the distribution companies (DISCOs) pending a resolution of the petition filed by the association to the National Electricity Regulatory Commission (NERC)
NERC approved the new tariff due to financial illiquidity and mounting losses incurred by the DisCos stemming from the lack of a cost-reflective tariff within the power sector.
The Minister of Power, Adebayo Adelabu, had earlier said that the federal government was subsidizing about 67% of the power sector, expected to amount to N2.9 trillion by the end of 2024.
The report also showed that about 52% of electricity costs would not be subsidized monthly as the government has halted a significant portion of the electricity subsidy.
With the refusal of MAN to pay the tariff, Discos is expected to bear more losses in the coming months.
According to the latest report by NERC, DisCos, revenue collections stood at N294.95 billion out of the N399.69 billion billed to customers in the fourth quarter of 2023, indicating a N105.1 billion loss in total.
Manufacturers believe they are being unfairly targeted with high electricity tariffs according to a report by Nairametrics,
This appears to be part of a government strategy to shift the burden of electricity cross-subsidies onto them, a responsibility previously borne by the government before it ceased subsidizing the sector.
The aim is to impose cost-reflective rates on these companies.
Electricity cross-subsidy is a process where tariffs are adjusted so that customers with high demand and more reliable power supply pay higher rates.
This is done to compensate for customers who receive limited power and face affordability challenges.
In a letter dated May 9, 2024, and addressed to its members, MAN instructed them to adhere to the previous tariff rates and urged them not to be deterred by NERC’s actions, emphasizing the association’s commitment to escalating discussions with the DisCos and the federal government.
“In the face of this stark reality and in order to ensure that members’ businesses are not disrupted and the DisCos are not starved of needed revenue, you are advised to pay the old rate on account, whilst we intensify our engagement with NERC/DisCos with a view to ensuring that due process is followed in tariff setting and that our members are only required to pay a fair price for power supplied.
“We have since instructed our Expert/Solicitor to stand ready to take further necessary action to ensure that our members are not intimidated or compelled to pay the rate in dispute,” the letter read in part.
DisCos threaten disconnection
To secure payment of the revised tariff, sources said DisCos are threatening widespread disconnection targeted at companies and factories that have refused to pay the new rate implemented by NERC.
An official who chose to remain anonymous told Nairametrics that the power distribution companies would have no choice but to disconnect some of these companies from their services as the old rate remains unstainable for the electricity providers.
“I think DisCos have no choice but to embark on widespread disconnection to avoid carrying over these losses.
“Meanwhile, we also understand some of the companies are seeking alternatives such as gas and ‘eligible’ customers to reduce their electricity cost,” the source said.
Furthermore, Mr. Ajayi Kadiri, the Director-General of MAN, stated in his correspondence that members have received bills indicating the tariff hike, with some being notified of impending electricity supply disconnections to their factories.
“Our members have been served bills reflecting the increase and some have been informed that electricity supply to their factories will be cut off.
This is rather unfortunate and does not demonstrate the willingness to engage manufacturers with a view to arriving at a mutually beneficial outcome,” Kadri said.
Ongoing Petition with NERC
Last Thursday, a panel of NERC adjourned its verdict on the petition by the Manufacturers Association of Nigeria, MAN, indefinitely.
The Vice Chairman of NERC, who doubles as chairman of the panel, Dr Musiliu Oseni, said that the commission would take some time to review the petition and come up with a fair verdict.
On their part, however, the counsel to MAN, Tola Oshodi, urged the electricity regulator to reverse the recently hiked tariff for Band A consumers, as it was inimical to the manufacturing sector.
“We are here to appeal. MAN was not given an opportunity to make representation before the new tariff was fixed.
“MAN is recognized in the guidelines as a stakeholder that must be engaged before such decisions, but it never happened. The provision for stakeholders’ engagement was not complied with.
“We appeal that the new tariff should be suspended as we go through the process of engagement,” he said.
