Some stakeholders in Nigeria’s power sector have declared that the Nigerian Electricity Regulatory Commission’s Service-Based Tariff (SBT) model has failed to achieve its core objectives of revenue sustainability and attracting private investment required to improve electricity supply to customers after more than three years of implementation of the policy.
They stated the position during a panel discussion on “Tariff Reform in Practice: Managing Revenue Sustainability, Customer Expectation and Service Delivery Together”, at the just-concluded Nigeria Energy Exhibition in Lagos.
During the session, regulators, bulk traders, and the organised private sector were asked whether the current tariff model worked in practice, who benefitted, and who bore the risks.
Setting the tone, Chairman of Abia State Electricity Regulatory Commission, Mr. Emeka Onyegbule, said the framework was designed to ensure cost recovery as a foundation for investment, but it had not achieved that.
Onyegbule said, “Have we been able to attract the right investment by virtue of doing the SBT? The answer to that question is no. And it’s no because we have about five bands. So what it means is that apart from Band-A, other bands are not paying cost-effective tariff.”
He added, “This has been going on since 2022 when NERC did SBT. So what it essentially means is that the revenues that come into the market are very inadequate to attract the kind of investment you want.
“One can imagine if you want to go to a bank to raise financing, your bottom line is very key. The bank would say, we see your cash flow. How are you able to pay back? And if we understand that investment that comes into utility businesses are borrowed funds, such bottom lines cannot support active investment.”
He stated that until the national electricity market achieved revenue adequacy across all bands, it will continue to struggle to attract the long-term capital needed for generation, transmission, and distribution improvements, leaving the sector in a cycle of liquidity crisis and underinvestment.
Director of Contracting at Nigerian Bulk Electricity Trading Plc (NBET), Dr Johnson Akinnawo, said SBT could not be judged in isolation, but must be situated within the broader reform programme that was supposed to make it work, including World Bank support, metering, and network strengthening.
“The objective of the SBT was to start at N200 for Band-A and other bands hovering around N68, but the macroeconomics between 2022 and 2023 impacted heavily on these reforms, and when you have generation companies’ invoices 100 per cent indexed to the dollar, we saw invoices rise from N70 billion per month to N300 billion within a very short period,” Akinnawo said.
He explained that the World Bank Power Sector Recovery Operation had provided $750 million for NBET to plug the tariff shortfall, which represented the delta between the N68 paid by lower bands and the N200 cost-reflective level. This, he said, was to work alongside mass metering to shore up collections, transmission projects by the Transmission Company of Nigeria (TCN) to improve evacuation, and Distribution Sector Recovery Project (DISREP) to strengthen distribution networks.
He stated that the flotation of the naira reversed gains in Distribution Companies (Discos’) Remittance Obligation, which had been heading towards 80 per cent.
Akinnawo said there was also a school of thought that system inefficiency, not just tariff level, was responsible for lack of cost reflectivity.
According to him, “When we look at the tariff systems, from when we had subsidy attached to them to the different bands and the promises along these bands, with all the adjustments that have gone with the tariffs, the megawatt itself that is available for businesses and households has not actually significantly increased.
“So businesses pay higher tariffs, whether Band-A or other bands, they don’t get the power, so they go ahead again and make alternative sources to back up.”
He said the private sector expected that private investors taking over from government would run the business better and supply more power, but as things stood, businesses faced higher tariffs, low satisfaction, and continued reliance on diesel generators.
While appreciating the efforts of government and Discos, he said the challenge appeared to be beyond them and questioned when businesses will finally get the stable supply to power operations and industrialisation.
For her part, Managing Director of Lagos State Electricity Regulatory Commission (LASERC), Mrs Temitope George, admitted that while the intention of the policy was good, implementation had created a cross-subsidy burden.
George explained that the service-based tariff was a performance-based model divided into five different bands developed by NERC to set out cost-reflective tariffs in line with the Electricity Act 2023, reduce subsidy, and solve liquidity and legacy debt issues.
Under the policy, Band-A customers who get 20 to 24 hours of supply pay N209.5 per kilowatt, while Band-B customers with 16 hours pay N68, with tariffs declining for lower bands.
She stated that the policy was meant to incentivise performance across the value chain and ensure that over time everyone would pay cost-reflective tariff.
However, the number of Band-A feeders ballooned from 45 to 50 at inception to over 450 now, meaning more than half of customers are now in Band-A, where Discos get the bulk of their revenue to cross-subsidise other bands, George said.
Stakeholders agreed that without a phased adjustment of other bands toward cost reflectivity, deliberate measures to improve efficiency and cut generation costs, and full implementation of allied reforms, the SBT will continue to punish Band-A customers, leave Discos financially fragile, and deny businesses the reliable power needed for growth.
From the private sector perspective, Director of Research and Advocacy at the Lagos Chamber of Commerce and Industry, (LCCI), Dr Sunni Omeiza-Michael, said businesses had continued to bear the brunt of a reform that promised more power but delivered higher costs.
Peter Uzoho
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