The Nigerian Electricity Regulatory Commission (NERC) has revealed that the Federal Government will fund the tariff shortfall of N104.5bn that will be posted by the electricity distribution companies (Discos) from September to December 2020.
The Discos had early this month announced what they called “new service reflective tariff,” which took effect from September 1, 2020, with the tariffs being charged residential consumers receiving a minimum of 12 hours of power supply rising by over 70 per cent.
Tariff shortfall is the difference between the Discos’ revenue requirements and what they are allowed to recover from their customers by the regulator.
According to a NERC document, Ibadan Electricity Distribution Company has the highest tariff shortfall of N15.67bn, followed by Benin Disco, with a shortfall of N12.27bn.
NERC said the Power Sector Recovery Plan provided for a gradual transition to cost-reflective tariffs with safeguards for the less privileged in the society, adding that full cost-reflective tariffs would be charged by July 2021.
“The Federal Government, under the PSRP Financing Plan, has committed to fund the revenue gap arising from the difference between cost-reflective tariffs determined by the commission and the actual end-user tariffs during the transition to cost-reflective tariffs,” it added.
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According to the commission, all the Discos are obligated to settle their market invoices in full as adjusted and netted off by applicable tariff shortfall approved by the commission.
It said, “All the FGN intervention from the financing plan of the PSRP for funding tariff shortfall shall be applied through the Nigeria Bulk Electricity Trading Plc and the market operator to ensure 100 per cent settlement of invoices issued by market participants.
It stated that the Discos would be liable to relevant penalties/sanctions for failure to meet the minimum remittance requirement in any payment cycle in accordance with the terms of its respective contracts with the Nigerian Bulk Electricity Trading and the Market Operator, an arm of the Transmission Company of Nigeria.
The distribution and generation companies carved out of the defunct Power Holding Company of Nigeria were handed over to private investors on November 1, 2013, following the privatisation of the power sector.
Almost seven years after the privatisation, the investors who took over the power firms that emerged after the unbundling of the Power Holding Company of Nigeria are still grappling with the old problems in the sector.
The sector is plagued with problems of gas supply shortage, limited distribution networks, limited transmission line capacity, huge metering gap, electricity theft, and high technical and commercial losses, among others.
