FG foresees gradual rise in electricity tariff over 3 yrs

"The multi-year tariff order would have as its cost base N11 per kilowatt unit of electricity, thereafter it would be graduated according to specified margin to be determined by the Nigerian Electricity Regulatory Commission," says a source.

The source added that no consumer of electricity would pay the new bill "for now until possibly after three years during which enough enlightenment sensitisation would have been made."

The current tariff of N6 per kilowatt unit of electricity paid to the distribution companies would be augmented by the Federal Government through a subsidy of about N177 billion, which is expected to be part of the supplementary budget that is expected to be presented to the National Assembly. However, about N64 billion of the amount would be made available this year.

MYTO is a planning tool to provide a framework and the rules to apply in determining and regulating future tariffs to be charged by independent power producers (IPPs) over a period of time. It also allows stakeholders to envisage the outcome of various actions or events in the sector.

The tariff will progressively reflect the cost of supply of electricity at an adequate and improving level of efficiency.

As part of the reform initiatives of government for the power sector and the need to facilitate the involvement of the private sector in building necessary infrastructure, the tariff framework was approved and adopted by the Federal Government for tariff determination and a Multi-Year Tariff Order.

The Federal Government will bear the cost over the three-year period of the subsidy. The price of power will increase as generation improves. That is, should the cost of power per kilowatt increase to N8 in 2009, the Federal Government will pay for the extra N2 on the increase from the subsisting N6 per kilowatt.

Discussions on the MYTO were finalised in March this year after all stakeholders within the industry and outside the industry had deliberated on the issue of tariff.

There are different methods for regulation of electricity pricing (tariff) in a regulatory regime. The methods normally used are rate of return regulation (RoR), performance- or incentive-based regulation (PBR).

An industry source says the RoR, also known as cost of service regulation, is based on cost plus regulation.

He says the purpose of regulation is to ensure that the utility or licensee recovers all costs that are prudently incurred including a fair rate of return on prudent investment.

The expenses include fuel costs, purchase of power cost, operation and maintenance expenses including employees’ cost, administration and general expenses, depreciation expenses, interest on loans and taxes.