Nigeria's Band A Tariff Reset Moves Subsidy Off the Budget but Puts Service Quality on Trial
On 3 April 2024 the Nigerian Electricity Regulatory Commission issued its April 2024 Supplementary Order and raised the tariff for Band A customers from about N68 per kilowatt-hour to N225. Band A covers customers on feeders that are supposed to receive an average of at least 20 hours of supply a day. NERC said the change affected only about 15 per cent of the customer population, with Bands B to E, the remaining 85 per cent, left on frozen tariffs.
The commission estimated that the order would cut the 2024 electricity subsidy by about N1.14 trillion. Nigerian tariffs had been effectively frozen for about two years while the cost of gas, generation and foreign exchange rose. The gap between the cost-reflective tariff and what customers paid was being covered by the federal government. In Nigeria it has been a liquidity problem across the whole power chain. The banding system was introduced by NERC in 2020 as part of the service-based tariff framework.
Feeders are classified from Band A, with at least 20 hours of supply a day, down to Band E, with fewer than four. Distribution companies are now under an obligation to deliver an average of at least 20 hours a day to Band A customers, measured over a week. There is a good case that many Band A customers can bear the price. They are disproportionately commercial users and better-off urban households, and a large share of them have been running petrol or diesel generators to cover outages.
The order depends on accurate knowledge of how many hours each feeder is energised and on the regulator acting on that information. Twenty hours a day on Band A feeders requires enough generation and transmission to serve those feeders first. Customers paying the full cost of supply should not be on estimated bills. Third, make sure the extra revenue reaches the rest of the chain. The purpose of the tariff increase is to improve liquidity for generators and gas suppliers.
Nigeria's Band A reset is more intelligent than an across-the-board increase and more honest than another year of open-ended subsidy. It accepts that the customers who receive good service should pay what that service costs, and it gives distribution companies a reason to improve feeders.