As Reported by Ejiofor Alike
10 January 2011
The Federal Government said it plans to crash the "real cost" of electricity tariffs by 65 per cent, as part of the measures to check the present trend whereby exorbitant real cost of electricity being incurred by Nigerians has jerked up the cost of other goods and services in the economy.
Presidential Task Force on Power (PTFP), which confirmed this development in a report released yesterday, stated that though this new tariffs to be announced in April 2011, would increase "nominally" to between N21 and N23 per kilowatt hour (kwh), the figure is just one-third of what Nigerians actually pay for electricity.
Nigerians currently pay between N8 and N14 per kilowatt hour to the Power Holding Company of Nigeria (PHCN), but the Chairman of the Communications Committee of PTFP, Dr. Abimbola Agboluaje said in the report that independent studies had shown that in real terms, the poorest Nigerians currently pay more than N80/kWh burning candles, kerosene and firewood.
According to him, independent and informed analysis also indicate that while the majority of Nigerians pay between N50 and N70/kwh on self-generation, manufacturers pay between N45 and N60/kWh on diesel or Low Pour Fuel Oil ( LPFO), using larger generators.
"Analysis of the reduction in the price Nigerians pay for electricity does not use the universally subsidised tariff as a reference; this is regarded as a "nominal" price. Rather it is based on the "real cost" which a majority of Nigerians really pay to consumer electric power during the 60-70 per cent of the time when public power supply is unavailable at the subsidised tariff," he said.
He said the Federal Government decided to reform the tariff structure because the &"nominal tariff" was seriously blocking investment not only into the power sector but also the larger economy.
The PTFP Sub-Committee Chairman said the new tariffs to be announced in April 2011 by the Nigerian Electricity Regulatory Commission (NERC) "will attract new capacity to the power sector, thus significantly reducing the electricity cost of businesses and individuals, prices of goods and the rate of inflation in the country".
Agboluaje said rather than protecting consumers, the present subsidised nominal tariff has imposed a crushing cost of electricity on Nigerians, making it one of the highest in the world.
He acknowledged that while Nigeria's current "nominal tariff" is about one-third of the African average, the "real cost" Nigerians pay for electricity is four times the regional average.
According to him, for most of other countries, electricity tariffs are the real and effective cost of electric power; that is, 100 per cent of their electricity consumption is based on their electricity tariffs.
He noted that the present high cost of "real cost" of electricity in the country has jerked up the cost of goods and services.
"For instance, mobile telephone costs are high because operators have to invest billions of naira in buying, operating and maintaining generators. It also significantly adds to the cost of a host of services like dry cleaning, drugs retailing, hairdressing, catering, hotels etc. The ability of these businesses to attract more customers, grow their businesses and employ more staff is severely constrained. Many manufacturing businesses which are energy-intensive e.g. textile factories have closed down because the high real cost of electricity in Nigeria makes their products too expensive and imported ones much more attractive," he explained.
He stated that as the reform of the power sector proceeds, only NERC, a fully independent agency can determine electricity tariffs, stressing that neither the Federal Government nor electric power companies has the powers to fix tariffs.
Agboluaje, who noted that NERC's independence would be critical to the success of a reformed electricity sector, also assured investors that the regulatory agency would not set politically popular rates of tariffs but rates that are based on the fair costs of producing and distributing power.
He said NERC's main function was to create enabling conditions that would stimulate investment and competition required to deliver the greatest value to consumers.
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