Delays in Nigeria’s Multi-Year Tariff Order: A Growing Concern for the Electricity Sector
The Nigerian electricity market is facing significant challenges due to repeated delays in the implementation of the Multi-Year Tariff Order (MYTO) framework. Originally designed to establish a pricing mechanism for electricity, the MYTO approach has seen the latest minor review postponed for the fourth time, raising concerns within the sector about transparency, sustainability, and economic viability.
What is MYTO?
The MYTO framework was introduced to provide a structured approach to electricity pricing in Nigeria, aimed at fostering a more stable and predictable environment for both consumers and electricity providers. It was first signed into effect on December 18, 2015, and implemented on February 1, 2016, setting the tariff at N31 per kilowatt hour (kWh). However, following extensive evaluations, the Nigerian Electricity Regulatory Commission (NERC) determined that this figure should have been increased to an average of N51 per kWh considering the evolving macroeconomic landscape.
Reasons for Delays
According to government officials, including representatives from NERC, the delays in reviewing and implementing these tariff adjustments can be attributed to several complicating factors. Among these are fluctuating macroeconomic indicators, including inflation rates, foreign exchange valuation, and power generation outputs. All these elements play a crucial role in determining electricity pricing, and the failure to adjust tariffs in accordance with them poses a significant challenge for the sector.
Additionally, officials from the electricity Distribution Companies (DisCos) expressed their frustration during a consultation by NERC in September. They highlighted that their inputs for the MYTO reviews over the last two years had not yielded any updates, leaving stakeholders in a state of uncertainty about future pricing structures.
Financial Implications: A Sector in Crisis
The financial ramifications of these delays are staggering. The Association of Nigerian Electricity Distributors (ANED) reported that the electricity market has incurred a shortfall of approximately N460 billion due to tariff inconsistencies and the failure to implement essential reviews. This figure includes a staggering N187 billion deficit resulting from a freeze on Residential customers 2 (R2) tariffs between January and June 2015, along with the removal and subsequent reinstatement of collection losses from tariff calculations.
In 2016 alone, ANED recorded an additional N277 billion shortfall due to NERC’s decision to extend the tariff plan over a decade, along with a further N46 billion linked to the non-review of tariff assumptions during both review periods of that year. These financial deficits not only compromise the operational capacities of DisCos but also hinder their ability to deliver reliable electricity to consumers.
The Impact on DisCos
The precarious financial situation has led many Distribution Companies to struggle with their invoices for energy and services procured from the Nigeria Bulk Electricity Trading Plc (NBET) and the Market Operator (MO). According to Mr. Sunday Oduntan, Director of Research and Advocacy for ANED, most DisCos are unable to remit even 50% of their invoices due to the prevailing tariff shortfall.
Oduntan noted that the situation is untenable: “It is difficult to pay 100% for energy when we sell the product for N31.58k but buy it as high as N68.” This pricing discrepancy reveals the unsustainable nature of the current tariff structure and underscores the urgent need for a comprehensive review.
Market Effects and Future Prospects
The ongoing tariff issues have far-reaching consequences, not only for the DisCos but also for consumers and the broader economy. The inability of the DisCos to collect sufficient revenue leads to widespread power outages, negatively impacting businesses and daily living conditions, particularly in a country where steady power supply is paramount for economic growth.
With two pending reviews for 2017 and the anticipated outcome for the fourth review originally slated for implementation on January 1, 2018, the electricity market remains in a state of stagnation. Stakeholders are left awaiting NERC’s call for submission of inputs to understand the next steps in the tariff adjustment process.
Conclusion: A Call for Action
The persistent delays in the MYTO framework call for immediate action from all stakeholders, including the NERC, DisCos, and government authorities. Without prompt and decisive measures, the Nigerian electricity sector may find itself further entangled in financial shortfalls and inefficiencies that could have dire consequences for the entire economy. As discussions continue, the hope is that viable solutions will emerge to pave the way for a more stable and effective electricity pricing system in Nigeria.