World Bank, OPS Differ on Nigeria’s Electricity Tariff Hike

•Bank hails policy as private sector operators say tariff increase will close down 65% manufacturing, other businesses

•IMF declares country’s debt-service burden has hit 56% of tax revenue, posing fiscal challenges

Nume Ekeghe and Dike Onwuamaeze

The President of the World Bank, Ajay Banga, yesterday, commended Nigeria’s efforts in implementing electricity tariff reforms while urging the need for  further regulatory certainty and clarity in tariff policies.

Banga, made the assertion on same day the organised private sector in Nigeria (OPSN) declared that the new increase in electricity tariff would force over 65 per cent of private businesses, especially manufacturing concerns and Small and Medium Industries (SMIs) to close down.

The World Bank chief spoke during an event titled,  ‘Energising Africa: What will it take to achieve universal energy access?’at the ongoing hybrid IMF/World Bank spring meetings in Washington DC.

Banga reiterated the necessity of social safety nets to protect the most vulnerable, and the importance of paying the appropriate amount for electricity consumption.

Furthermore, he pledged, alongside Akinwumi Adesina, President of the African Development Bank (AfDB), to address the electricity shortfall in Africa. The current deficit stands at 600 million people without access to electricity, to narrow this gap to provide affordable electricity to 300 million individuals in Africa by 2023.

Also, in a separate briefing, the unveiling of the updated Fiscal Monitor by the International Monetary Fund (IMF) highlighted that Nigeria’s debt-service burden has surged to 56 per cent of tax revenues, presenting significant fiscal challenges.

They made this commitment yesterday at a World Bank event titled  Energizing Africa: What will it take to achieve universal energy access? at the ongoing hybrid IMF/World Bank spring meetings in Washington DC yesterday.

Speaking on the energy reforms in Nigeria, he said: “You need utilities to be capable of paying the generators. You need tariffs and policies that make them capable of being liquid and profitable enough. I don’t mean you should raise tariffs on the poorest, we both believe in social safety net and we fund them but it is pay the right amount for what you can pay and Nigeria is currently going through an enormous correction. They have to manage well for the poorest in the society to not be as impacted as the others but they are doing it.

“We need regulatory certainty, tariff policy clarity, and good management teams running utilities and transmission lines because that makes the rest of it possible.”

On the joint commitment of providing affordable electricity in Africa, they both noted that power was necessary to foster growth and development and the World Bank would commit to providing 250 million while AfDB would provide for 50 million.

Banga said: “ 600 million people in the continent do not have access to any power and to me, that is an unacceptable situation in the year 2024. Electricity is a human right, it is the basis by which people get access to health, education, the ability to innovate and manufacture, and build productivity.

“The news about 600 million in darkness is not new, but we need to move past the problem and have tangible results and what you would hear from both of us today is a commitment. Back in COP 28 the world bank made a commitment to connect 1 million Africans to affordable energy in six years. What we are doing today is multiply that commitment by bringing in all parts of the bank and all parts of Africa and really thinking of how we can make this work. We have multiplied that commitment to 250 million people out of that 600 million people.

“My estimate for the World Bank alone for the two 250 million is going to take more than $35 billion to make this happen.”

Furthermore he added: “So think about this as an important human right which allows us to build jobs and capabilities in Africa.

“I believe that the future in Africa and the jobs for young people depends on five big areas, the first one is energy, infrastructure,  agribusiness, tourism and health care.”

On his part, Adesina said: “ We at the African Development Bank, we’ll make sure that we are able to provide 50 million access by 2030. But in addition to that, we have to also harness a significant amount of renewable energy potential we have.”

In the Fiscal Monitor report released, on Nigeria states that  high debt-servicing costs limit the ability of Nigeria and other low-income developing countries to allocate resources toward essential services and critical investments necessary to enhance economic resilience and alleviate poverty.

It states: “Large shares of loans on concessional terms, high  inflation, and resulting favorable interest-growth differentials have helped contain average public-debt-to-GDP ratios in low-income developing countries, at around 50 percent of GDP since

2020, on average. An exception was an uptick to 53 percent of GDP in 2023, largely driven by exchange rate depreciation in Nigeria.”

“However, countries are carrying heavy debt-service burdens, amounting to 13 percent of total spending and almost 25 percent of tax revenues, on average, in 2023 about double the level 15 years ago. In Nigeria, the debt-service burden amounts to around 56 percent of tax revenues.

Such high debt-servicing costs prevent low-income developing countries from spending more on essential services and critical investment to improve economic resilience and reduce poverty. Economies in this country group are also borrowing increasingly on commercial terms, amplifying their exposure to interest rate and foreign exchange risks.”

Meanwhile, the OPSN in a statement titled, “Preliminary Position of the OPSN on the Over 200 Per Cent Increase in Electricity Tariff,” pointed out that Nigeria now ranks third after Germany and The United Kingdom on the list of countries with highest electricity cost.

The OPSN is made up of top Business Membership Organisations (BMOs) such as Manufacturers Association of Nigeria (MAN), Nigerian Association of Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), Nigerian Employers Consultatice Association (NECA), National Association of Small Scale Industries (NASSI) and National Association of Small and Medium Enterprises (NASME) and representing more than five million businesses in Nigeria.

It stated: “Truth be told, over 65 percent of private businesses, especially manufacturing concerns and SMIs, may be forced to close down due to the high electricity tariff.

“Clearly, with the new tariff of N225/kwh, Nigeria now ranks third after Germany and United Kingdom on the list of countries with high electricity cost. What is most worrisome with the Nigerian case is the fact that the electricity to be supplied is not adequate.

“Also, the increase is coming on the heels of macroeconomic instability, infrastructure deficits, as well as other supply side constraints limiting the performance of the productive sector.”

It added:  “The OPSN is constrained to state that the more than 200 per cent increase in electricity tariff at this difficult time is inimical to the survival of our businesses and would lead to unprecedented downturn in the productive sector of the economy.”

The OPSN said that it has received numerous complaints from its member-companies on the implications of the recent astronomical increase in electricity tariff by the Nigerian Electricity Regulatory Commission (NERC) for Band A customers without the required and proper consultations with the private sector.

This sudden exponential increase in the face of inadequate electricity supply, according to the OPSN, “is inimical to the competitiveness of Nigerian products and businesses and will definitely exacerbate the impact of high cost of production.

“Meanwhile, the astronomical increase is against the MYTO Order referenced NERC/2023/05, which valued the cost-reflective tariff at N114.8/Kwh (determined using exchange rate of N919.39/$1).

“It also does not reflect the current exchange rate reality that has seen the Naira appreciated by 62.95 percent over the dollar in the last one month.”

The OPSN noted that a closer look at the impact of increase in electricity tariff to N225/kwh (determined using exchange rate of N1463.31/$1) on the cost profile of a medium sized company using 700kw revealed that the firm would “need to pay about N1.4 billion per annum (700 x 225 x 24 x 365) for electricity.

“In China, a similar medium sized company will pay a little over N24 million (700 x 94.14 x 24 x 365). Obviously, the new electricity tariff is outrageously higher, when compared with the going rates in countries with significant manufacturing performance.”

It added that in the United states of America (USA), United Kingdom, Germany, France, China, India, South Africa, Ghana and Benin Republic, prevailing electricity cost per kilowatt hour are $0.1545, $ 0.3063, $0.53,$0.0573,$0.076, $0.068, $0.0999, $0.123 and $0.195 respectively.

“The conversion values of the afore-mentioned electricity cost in Naira are N191.38, N379.41, N656.50, N70.98, N94.14, N84.23, N64.53, N152.36 and N125.95 respectively,” which it said made Nigeria the third country with highest electricity cost.

The OPSN said that in consideration of the above and from compelling primary data and submissions from member-companies, the latest increase in tariff would have negative trickle-down effects and certainly impoverish Nigerians.

“The unwarranted increase will worsen the upward swing in inflation, aggravate the pressure on the disposable income of the average Nigerian and lead to closure of many private businesses.

“The cumulative effect will be an escalation of the current high level of unemployment and insecurity in the country.

“Consequently, the OPSN hereby calls for the suspension of the implementation of the new tariff to enable all stakeholders have meaningful dialogue around the process and methodology of determining electricity tariff as well as jointly agreeing on the transparent mechanism required for tariff setting,” the statement added