The Federal Government has pledged to bridge the financial shortfall created by the gap between cost-reflective electricity tariffs and the actual prices paid by customers of the Kano Electricity Distribution Company.
According to The PUNCH, this commitment is part of a September 2024 Supplementary Order issued by the Nigerian Electricity Regulatory Commission under the Multi-Year Tariff Order framework, released on Thursday.
Effective from September 1, 2024, the supplementary order is designed to correct the financial imbalances caused by external economic forces, such as fluctuations in exchange rates and rising inflation.
As outlined in the document, the government’s subsidy policy on electricity tariffs aims for a gradual shift toward cost-reflective end-user tariffs while ensuring protection for vulnerable customers.
The order notes, “The FGN policy on subsidy and electricity tariffs provides for a gradual transition to cost-reflective end-user tariffs with safeguards for the less privileged electricity consumers.”
Consequently, the Federal Government has taken steps to cover the revenue gap between the approved cost-reflective tariffs and the actual rates charged to end users. This will apply during the transition to more sustainable tariff levels where necessary.
NERC further explained that key financial variables, such as the naira’s exchange rate against the US dollar, Nigeria’s inflation rate, and US inflation rates, were carefully reviewed in recalibrating KEDCO’s tariff and revenue projections for the remainder of the year. Specifically, the order adopted an exchange rate of N1,601.50 to the US dollar for the September to December 2024 period, while the Nigerian inflation rate was pegged at 33.40% for July 2024.
In light of these economic pressures, the Federal Government’s intervention will allow KEDCO to fulfill its financial responsibilities.
NERC elaborated, “FGN intervention from budgetary appropriation and other sources for funding tariff shortfall shall be applied by NBET to ensure 100% settlement of market invoices as issued by generating companies (GenCos).”
The order also outlines KEDCO’s service commitments under the Service-Based Tariff framework, which requires the company to deliver electricity based on minimum supply hours for customers in various tariff bands.
NERC stressed that “KEDCO shall be held accountable for service deliveries per commitments under its Service-Based Tariff proposals.”
Furthermore, KEDCO has been tasked with improving its infrastructure to meet these commitments. Part of this upgrade involves securing additional power generation capacity.
According to the order, “KEDCO is obligated by this Order to procure a minimum of 27MW capacity of embedded generation, being 10% of its 2024 load allocation.”
Notably, at least 50% of this new capacity must come from renewable energy sources, reinforcing Nigeria’s commitment to a greener energy future.
This financial support from the government is intended to provide stability within the electricity market while protecting consumers from the immediate impact of cost-reflective tariffs.
At the same time, it allows KEDCO to continue offering essential services and meeting its payment obligations to electricity generation companies.
In closing, NERC pledged to monitor KEDCO’s compliance with the set service standards. “The commission shall continue to leverage technology to directly obtain data on the hours of supply on each Band A feeder from the head-end system of KEDCO for near real-time monitoring of service,” the commission affirmed.
