The Federal Government has pledged to cover the revenue shortfall resulting from the disparity between cost-reflective electricity tariffs and the lower tariffs currently paid by customers of the Kano Electricity Distribution Company (KEDCO).
This commitment was outlined in a supplementary order issued in September 2024 by the Nigerian Electricity Regulatory Commission (NERC) under its Multi-Year Tariff Order (MYTO) framework. The order, released on Thursday, is set to take effect from September 1, 2024, and aims to address the financial strain caused by factors such as exchange rate fluctuations and inflation.
According to the document, the government’s subsidy policy is designed to ensure a gradual transition to cost-reflective tariffs, with protections in place for lower-income consumers.
“Accordingly, the Federal Government has committed to funding the revenue gap arising from the difference between cost-reflective tariffs approved by the commission and the actual end-user tariffs during the transition to cost-effective tariffs where applicable,” the order stated.
NERC’s review considered several economic indicators, including the naira-to-dollar exchange rate and the inflation rate, in revising KEDCO’s revenue requirements and tariffs for the remainder of 2024. The exchange rate has been set at N1,601.50 to US$1 for the September-December period, while Nigeria’s inflation rate, recorded at 33.40 percent in July 2024, was factored into projections.
This intervention by the Federal Government is expected to help KEDCO meet its financial obligations, despite mounting cost pressures. NERC clarified that funds allocated for this subsidy would be used by the Nigerian Bulk Electricity Trading (NBET) company to ensure full payment to electricity generation companies (GenCos) for market invoices.
The order also outlined KEDCO’s service delivery commitments under the Service-Based Tariff (SBT) framework, with the company being held accountable for providing customers in different tariff bands with a minimum number of electricity supply hours. Additionally, KEDCO is required to upgrade its infrastructure, including securing additional embedded generation capacity.
“KEDCO is obligated by this order to procure a minimum of 27MW of embedded generation, representing 10% of its 2024 load allocation,” the order stipulated. Of this, at least 50% must come from renewable energy sources.
The Federal Government’s financial support aims to stabilise the electricity market and protect consumers from the immediate burden of cost-reflective tariffs. This will enable KEDCO to maintain essential services while fulfilling its market payment obligations.
NERC also pledged to closely monitor KEDCO’s compliance with its service obligations, stating, “The commission shall continue to leverage technology to directly obtain data on the hours of supply on each Band A feeder from KEDCO’s head-end system for near real-time monitoring of service.”
This initiative is part of ongoing efforts to improve electricity distribution and ensure accountability in service delivery during this critical transition period.
