… Different states again N160/kWh
Business sources and in depth information obtained by BusinessDay have supplied perception into how Enugu Electrical energy Distribution Firm (Enugu DisCo) adopted a data-verification strategy to electrical energy tariff setting, in the end arriving at a tariff of N160 per kilowatt hour (kWh), a improvement different states have hailed as a benchmark for transparency and accountability in Nigeria’s energy sector.
This transfer, BusinessDay can report, marks the primary time since 2014 {that a} Nigerian electrical energy distribution firm has gone to such lengths to make sure that pricing shouldn’t be based mostly on unverifiable assumptions, padded value claims, or opaque submissions.
The method, initiated in response to a tariff proposal from a non-public operator, has not solely uncovered systemic weaknesses in Nigeria’s electrical energy tariff dedication course of but in addition offered a replicable mannequin for different states.
Learn additionally: Enugu’s Band A tariff slash aligned with Electricity Act 2023 – Power Commissioners
Preliminary proposal: Hefty N209/kWh
The journey to N160/kWh started when MainPower Electrical energy Distribution Restricted, a service supplier in Enugu, submitted a tariff proposal to Enugu DisCo requesting approval to cost N209 per kilowatt hour.
Somewhat than rubber-stamp the determine, a apply frequent in Nigeria’s electrical energy market, Enugu DisCo’s management took an uncharacteristically agency stance.
“They informed MainPower, ‘Go and recheck your information. This quantity doesn’t maintain below scrutiny,’” stated a senior trade supply accustomed to the method.
Enugu DisCo made it clear from the outset that its involvement would focus solely on the distribution part, the part inside its authorized and operational jurisdiction.
“We didn’t contact the era or transmission part. These are the duties of the federal authorities and NERC,” an official stated.
As a substitute, the Enugu DisCo zeroed in on the distribution value claims submitted by MainPower, demanding verifiable proof for each naira listed below distribution.
On the subsequent assembly, MainPower returned with a revised proposal of N186/kWh. But once more, Enugu DisCo wasn’t glad. Its officers invited MainPower to take a seat down for an in depth examination of the associated fee construction.
That collaborative data-driven scrutiny, BusinessDay discovered, ultimately introduced the associated fee all the way down to N160/kWh – a dramatic discount made doable by eradicating unverifiable or inflated claims.
Understanding how a tariff is constructed is essential. Tariffs in Nigeria are composed of three main parts: era value, the price of producing electrical energy; transmission value, value of transporting electrical energy from era stations to distribution networks; and distribution value, value of delivering electrical energy to end-users.
The era and transmission parts are regulated and decided by the Nigerian Electrical energy Regulatory Fee (NERC), the federal company accountable for setting guidelines for the ability sector.
Learn additionally: Enugu crashes Band A electricity tariff to N160/kwh
A deep dive into distribution prices
In accordance with the NERC tariff methodology, the distribution part of the tariff is made up of three foremost value classes: Return on capital deployed, which incorporates funding in bodily infrastructure resembling transformers, feeders, and substations; value of capital, a weighted common of fairness and debt prices; and administrative value, which incorporates salaries, workplace operations, logistics, and different staff-related prices.
Every of those value gadgets have to be backed by verifiable information, and Enugu DisCo insisted on it.
“As an illustration, if you happen to declare to make use of 12 employees and our verification reveals you could have solely six, we are going to solely approve wage prices for six individuals,” the supply defined.
NERC template
It’s vital to notice that Enugu DisCo didn’t introduce a brand new tariff methodology. It strictly adopted the NERC tariff framework. What made the distinction was the DisCo’s insistence on information verification, one thing that has been largely absent from Nigeria’s energy sector.
“The final time this degree of verification was executed in Nigeria was 2014,” the supply revealed. “The regulatory framework requires such critiques each 5 years, however there was none in 2019 and none once more in 2024.”
This systemic failure has allowed DisCos, GenCos, and even the Transmission Firm of Nigeria to function on unverified, inflated value claims, that are in the end handed on to shoppers via larger tariffs.
BusinessDay’s findings confirmed this meticulous strategy revealed an internet of inflated value buildings that, when corrected, introduced the distribution value all the way down to N125/kWh, a large drop from the initially proposed N209/kWh.
“For the reason that present minister got here in, has he obtained any value verification report from the NERC? Has he verified GenCo information? Has he requested the Transmission Firm of Nigeria (TCN) to show its value construction? If not, then what’s his objection to Enugu DisCo’s methodology?” one analyst queried.
“Enugu didn’t invent a brand new system. They simply utilized the prevailing NERC framework correctly, for the primary time in a decade, and backed it with subject verification,” one other stakeholder defined.
The negotiation: From N125 to N160
The revised value raised issues from MainPower, who argued that the discount would impression its monetary sustainability.
“They stated N125 can be laborious to work with,” the supply recounted.
A negotiation adopted, guided by life like monetary expectations and funding sustainability. Enugu DisCo, together with related stakeholders, deliberated over what constitutes a good margin for a non-public operator within the Nigerian electrical energy house.
“What’s the everyday return on funding in Nigeria? What are the rates of interest, inflation threat, and enterprise atmosphere elements?” These have been the questions the staff used to find out an affordable revenue margin.
Ultimately, each events agreed on N160/kWh, a determine that features verified prices plus a modest, justifiable revenue margin. Opposite to the frequent criticism of tariff hikes funding lavish existence, Enugu DisCo made it clear that this determine doesn’t embrace luxurious prices resembling personal jets or luxurious SUVs.
Learn additionally: DisCos’ high electricity bills under scrutiny after Enugu’s tariff cut
System constructed on unverified assumptions
What makes Enugu’s strategy much more vital is its distinction to the nationwide apply. BusinessDay findings point out that no complete value verification has been executed within the Nigerian energy sector since 2014, regardless of laws mandating such workouts each 5 years.
“They didn’t do it in 2019. They didn’t do it in 2024,” stated the supply. “So these firms have been feeding unverifiable value information into the tariff mechanism, and nobody has checked.”
This lapse has enabled energy firms to routinely inflate prices, particularly round staffing, automobile fleets, gear procurement, and operational bills — and go the burden on to clients within the type of larger tariffs.
“The NERC tariff framework says ‘environment friendly value plus a good margin,’ however who’s verifying what’s environment friendly?” the supply requested rhetorically.
Simply political will
On the coronary heart of this transformation is not only entry to information, however political will. Enugu State governor’s workplace reportedly performed a essential function, insisting on clear processes and shielding Enugu DisCo from political and business pressures that may have derailed the train.
“That is what occurs when a authorities genuinely needs to guard its individuals. They didn’t say, ‘let’s simply rubber-stamp this as a result of that’s the way it’s executed.’ They stated, ‘Show it.’”
Federal authorities subsidy angle
Underpinning Nigeria’s tariff debate is the federal authorities’s subsidy coverage. The price of energy era, invoiced via the Nigerian Bulk Electrical energy Buying and selling (NBET), is partially subsidised.
By 2024, the federal authorities was subsidising as much as 66 p.c of the price of energy era throughout all DisCos. For Enugu particularly, the common subsidy price was 68 p.c, which means the federal authorities was successfully paying N68 for each N100 price of electrical energy delivered to Enugu residents.
A key difficulty raised by Enugu DisCo is whether or not this subsidy is justified and sustainable.
“If you wish to withdraw that N68, then present us the information. What’s the precise value of era? Let’s validate it. If not, don’t push the associated fee to finish customers with out scrutiny,” the supply argued.
Different states again Enugu regulator’s choice
On Wednesday, the Discussion board of Commissioners for Energy and Power in Nigeria (FOCPEN) clarified that the tariff adjustment carried out by the Enugu DisCo complies totally with the Structure of the Federal Republic of Nigeria, the Electrical energy Act 2023, and the Enugu State electrical energy legal guidelines.
The discussion board reaffirmed that the transfer was each authorized and strategic, rooted in a rigorous regulatory course of designed to make sure equity and transparency.
In a press release signed by Eka Williams, chairman of FOCPEN and commissioner for energy and renewable vitality, Cross River State, and Omale Omale, secretary, and commissioner for energy, renewable vitality and transport, Benue State, the group emphasised that the Enugu DisCo’s assessment was a product of intensive evaluation, together with a cautious examination of MainPower Electrical energy Distribution Firm’s capital and operational expenditures, buyer tariff classifications, and regulatory asset base.
The group said {that a} discovering had revealed that some lifeline clients on premium Band A feeders have been paying as little as N4.00/kWh, together with a distinguished former navy administrator.
This, the discussion board, stated prompted the fee to implement a cost-reflective tariff construction that ensures equity and sustainability.
“This rigorous evaluation was performed utilizing information and data supplied by the distribution firm itself. Enugu DisCo additionally carried out a rigorous evaluation of MainPower’s current buyer tariff classification and regulatory asset base,” the discussion board said.
FOCPEN additionally addressed rising issues amongst stakeholders, particularly electrical energy era firms (GenCos), over potential income losses.
It assured that intra-state regulatory actions don’t have an effect on the wholesale electrical energy market, which stays below the jurisdiction of the NERC.
“The worry amongst GenCos that Enugu State’s tariff assessment will negatively impression their income streams is unfounded. The Enugu DisCos actions don’t contact wholesale tariffs or transmission prices, that are securely regulated by NERC and have been duly factored into EERC’s calculations,” the Discussion board clarified.
It additionally reiterated that Nigerian states usually are not searching for to impose arbitrary tariff cuts or revert to unsustainable federal electrical energy subsidies.
