The recent tariff reduction to ₦160/kWh for Band A customers in Enugu State by the Enugu State Electricity Regulatory Commission (EERC) has raised concerns about the stability and liquidity of the Nigerian Electricity Supply Industry (NESI).
The Association of Nigerian Electricity Distribution Companies (ANED) in a reaction today stated that the unilateral decision without adequate coordination with NERC and other market participants by EERC has sparked pressure on other Electricity Distribution Companies (Discos) in other states to follow suit, with some customers demanding tariff reductions and threatening to withhold bill payments.
The Association, it a statement signed by its CEO, Barrister Sunday Oduntan maintained that while Discos hope for eventual tariff reductions, the current cost-reflective tariff is driven by economic realities. He noted that EERC's decision relies on federal government subsidies, which DISCOs support in principle. However, subsidies must be transparently structured and promptly funded to avoid cash flow disruptions, undermine market confidence, and exacerbate the liquidity crisis in the electricity value chain.
"The recent tariff reduction by the Enugu State Electricity Regulatory Commission (EERC) to ₦160/kWh for Band A customers in Enugu State, without adequate coordination with NERC and or other market participants raises significant concerns for the stability and liquidity of the Nigerian Electricity Supply Industry (NESI). Since the release of the Tariff Order by EERC for Enugu State residents, the Electricity Distribution Companies (Discos) in other States have come under intense pressure and scrutiny to also reduce tariffs, while some customers have taken a position that they will no longer pay their electricity bills until tariffs are reduced," the statement said.
"Permit us to establish the fact that as service providers, it is our hope and desire that electricity tariffs at some point should begin to come down with time. It is not our intention to make life difficult for our loyal customers, and we have been aligning with the Federal Government to ensure provision of stable power supply. However, the cost reflective tariff is as a result of the economic realities of our nation. We note that one of the principles adopted by EERC is to place reliance on the Policy of the Federal Government on electricity subsidies to enable them crash Band A Tariffs. While Discos are not opposed to subsidies in principle, we strongly emphasize that subsidies must be transparently structured and promptly funded. Delayed or unfunded subsidies create cashflow disruptions, undermine market confidence, and deepen the existing liquidity crisis across the electricity value chain," he added.
The Federal Government has emphasized that states reducing power tariffs must be prepared to pay subsidies and account for the financial implications especially as delays in subsidy payments has already burdened generation companies and gas suppliers in the past with nearly ₦5 trillion outstanding, causing operational strain. While states are now permitted to set up their own electricity markets, uncoordinated tariff reductions that don't align with market-wide cost-recovery mechanisms will lead to shortfalls in Disco remittances, putting GenCos and upstream service providers at financial risk.
"In a clear position, the Federal Government through the Honourable Minister of Power, Chief Bayo Adelabu has stated that States slashing power tariff must be ready to pay subsidy, and be accountable for the financial implication. It is important to stress that the Nigerian power market, in the short term, remains largely centrally coordinated, especially for Bulk energy purchases, Transmission, and market settlements involving Generation Companies (GenCos) and the Nigerian Bulk Electricity Trading Company (NBET).
"We duly recognise changes in law and regulation that now permits States to set up their electricity markets. However, any State-level policy action such as uncoordinated tariff reductions that does not align with market-wide cost-recovery mechanisms will inevitably result in shortfalls in Disco remittances to the market below their current Distribution Remittance Obligations, thereby putting GenCos and other upstream service providers at further financial risk. We understand further that the Federal Government does not have an elastic subsidy budget," ANED's CEO said.
While reiterating that the Association remains committed to advocating for a financially sustainable and customer responsive electricity sector in Nigeria, he pointed out that "...any tariff reduction following the approach adopted by EERC may further bloat the subsidy obligations of the federal government."
"We believe that the Federal Ministry of Power and the Nigerian Electricity Regulatory Commission (NERC) would be watching closely to provide guidance and align State and Federal objectives to ensure electricity access is accelerated in a sustainable and affordable manner.
"The above budgetary constraints apply to the States too. Most cannot afford to make direct budgetary provisions for subsidies especially in the face of rising governance costs and the harsh operating environment. This underscores the importance of collaboration and a well coordinated market driven approach on tariff related matters.
To sustain investments and improve service delivery, Discos therefore reiterate the need for stronger coordination between Ministry of Power, State Regulators, and NERC to ensure consistency in policy and rate design, alongside a clear, transparent, targeted, and fully funded subsidy framework with timely disbursement of payments. This will help avoid market distortion and improve market liquidity, he said.
"While the goal of making electricity more affordable is shared by all, it must be pursued in a manner that preserves the financial health of the market, encourages long-term investment, and avoids policies that could erode progress toward stable, reliable electricity for Nigerians."
