Nigeria’s electrical energy sector is dealing with renewed scrutiny following a landmark resolution by the Enugu State Electrical energy Regulatory Fee (EERC) to slash electrical energy tariffs for Band A clients.
The choice, whereas hailed by some as a step towards localised vitality autonomy, has stirred up intense scrutiny of the nation’s energy distribution firms (DisCos), particularly in relation to their present excessive electrical energy costs.
On the centre of the storm is the brand new tariff order issued by the EERC for MainPower, the state’s electrical energy distribution licensee, which units Band A tariffs at N160 per kilowatt-hour (kWh) for the 12 months 2025.
Learn additionally: Pressure mounts on seven states to follow Enugu DisCo’s Band A tariff cut
This determine stands in stark distinction to the present nationwide composite common of N208/kWh, prompting questions concerning the foundation of DisCos’ increased costs and the integrity of federal electrical energy pricing fashions.
The event marks some of the important assessments but of Nigeria’s Electrical energy Act 2023, which devolved energy sector regulation to the states, permitting sub-national entities to find out tariffs independently.
Enugu has change into one of many first states to grab this chance, setting a precedent that would reshape how electrical energy pricing is structured throughout the nation.
A senior oil govt within the energy sector instructed BusinessDay that the disaggregation into state electrical energy markets has compelled nearer scrutiny of how Discos’ prices are handed on to clients.
“That may solely be an excellent factor. It makes the continuing effort pushed by the Enyinnaya Abaribe-Senate Committee on Energy – to amend the Electrical energy Act to reverse this constitutional mandate to disaggregate into state markets – very possible to not succeed as a result of the states will push again very arduous,” he mentioned.
Much more contentious is EERC’s estimate that electrical energy era prices over the subsequent 5 years would common N45/kWh, a steep departure from the present nationwide common of N112/kWh.
This estimate implies that the federal authorities would wish to cowl a staggering 60 p.c shortfall, or a mean subsidy of N67/kWh, to make up the distinction.
Critics say this expectation is unrealistic, particularly given the federal authorities’s ongoing struggles to pay current energy sector money owed. Since President Bola Tinubu assumed workplace, electrical energy money owed have ballooned to round N3 trillion, with no funds made to date.
Though the 2025 federal price range consists of N900 billion for electrical energy subsidies, trade stakeholders argue that the funds haven’t been launched or backed with enough coverage commitments.
Compounding the issue are structural inefficiencies throughout the worth chain. In accordance with information from NERC, the A number of-Yr Tariff Order (MYTO) allocates N70/kWh for era, N50/kWh for fuel, N11/kWh for transmission, and N77/kWh for distribution. When technical, business, and assortment losses – estimated at 39.1 p.c as of Q3 2024 – are factored in, the composite tariff inflates to N208/kWh.
Meaning nearly N40 of each N100 value of electrical energy is misplaced and handed on to paying clients, who additionally bear the price of meter acquisition and loans taken out by market operators.
Kunle Olubiyo, electrical energy client advocate, criticised the association, saying that end-users are bearing the brunt of an inefficient system.
“The patron is paying for energy that’s misplaced to theft, defective infrastructure, and poor metering. We have to interrogate the assumptions and indicators behind the tariff components. It’s skewed towards shoppers,” he mentioned.
Learn additionally: Enugu crashes Band A electricity tariff to N160/kwh
Ripple results throughout the sector
Enugu’s tariff announcement is already creating ripple results throughout the electrical energy panorama. Client advocacy teams have seized the second to demand explanations from different DisCos as to why their tariffs stay excessive regardless of a supposed transfer towards cost-reflectivity.
The notion that clients in Enugu could pay considerably much less for a similar high quality of electrical energy service has raised public expectations and elevated stress on different state governments to comply with go well with.
Regardless of vehement pushback, a number of states have signalled their intention to comply with Enugu’s lead.
Seven states, together with Enugu, Ondo, Ekiti, Imo, Oyo, Edo, and Kogi, have now assumed regulatory management underneath the Electrical energy Act 2023, which devolved authority over era and distribution to state governments.
4 extra, Lagos, Ogun, Niger, and Plateau, are set to finish their transitions by September.
In the meantime, buyers and market observers are carefully watching how this experiment in state-level regulation unfolds. A profitable implementation in Enugu may set off a wave of comparable actions throughout Nigeria, resulting in a extra fragmented however probably extra aggressive energy market.
Market viability
Analysts additionally warn that Enugu’s resolution, whereas politically in style, will not be commercially viable in the long term if the underlying assumptions show defective.
There’s a danger that such strikes may evolve into populist gestures that fail to align with market fundamentals, finally eroding belief and straining the system additional.
“Tariff setting is a fragile steadiness between affordability and sustainability,” mentioned Adebayo Ojo, vitality economist at Sofidam Capital. “If states begin under-pricing energy to attain political factors, we’d find yourself with a patchwork of damaged methods. But when they get it proper, in the event that they genuinely have decrease price constructions, it may revolutionise electrical energy supply in Nigeria.”
Nonetheless, the EERC insists that its framework is constructed on a sound financial mannequin and pushed by a dedication to affordability and effectivity.
In accordance with the company, its forward-looking tariff schedule incorporates capital restoration, funding planning, and incentives for service enchancment, not simply political concerns.
Federal push for broader tariff hikes
The Enugu transfer comes at a time when the federal authorities is underneath stress to extend tariffs for Band B to E clients, a bunch that includes the majority of residential and small enterprise shoppers throughout Nigeria. Whereas Band A clients, who are supposed to obtain a minimal of 20 hours of electrical energy per day have already seen hikes in current months, many lower-tier clients proceed to obtain closely subsidised energy.
The push for broader tariff will increase stems from the sector’s rising liabilities, which have gotten unsustainable.
Investor confidence is already shaky. Years of unpaid money owed, coverage inconsistencies, and opaque regulatory choices have made Nigeria’s energy sector a tough promote for each native and international capital.
The dearth of clear frameworks for price restoration and subsidy cost mechanisms provides one other layer of danger, discouraging long-term investments in era, distribution, and infrastructure upgrades.
Nonetheless, many argue {that a} tariff reset is inevitable. As electrical energy prices push companies and even authorities businesses off the grid and towards various vitality sources like diesel mills and photo voltaic methods, the financial rationale for staying linked weakens.
For instance, even President Tinubu was not too long ago reported to have opted for off-grid options because of excessive electrical energy prices.
