May 10, 2024/FBNQuest Research

In April ’24, the Nigerian Electricity Regulatory Commission (NERC) raised the tariffs for (band A) customers who receive 20 hours of electricity supply. However, power distribution companies still need to meet the contracted supply hours for these band-A customers. Power cuts were widespread due to electricity shortages. Since the April tariff hike, data from the Transmission Company of Nigeria (TCN) showed reduced grid supply below 3,000 megawatts (MW). Furthermore, NERC reported that since 2018, international customers have owed Nigerian power companies over N132bn in unpaid bills. To address the issues of low supply and electricity debtors, NERC recently imposed a 6% cap on grid generation for international off-takers. Grid operators were instructed to prioritise domestic supply over international customers for six months, beginning May 1, ’24.

• Notably, since the announcement of the cap on May 4, grid supply has risen above 4,700MW.
• Additionally, the appreciation of the naira in the FX market over the last month prompted the NERC to revise its Multi-Year Tariff Order (MYTO) for May to December 2024.
• The reviewed MYTO implies a reduction in the exchange rate for calculating electricity tariffs.
• Consequently, band-A customers will benefit from a -16.1% reduction, bringing the new rate to N1,277.8/USD (from N1,463/USD).
• The revised tariff will lower end-user tariffs by -8.1% to N206.8/kWh from N225/kWh. This change affects all eleven electricity distribution companies.
• Regarding export supplies, Benin Republic relies on Nigeria for 72% of its electricity supply mix, Togo for about 47%, and Niger for 87%.
• The cut in supply leaves these countries facing substantial energy shortfalls, pushing them to seek alternative sources of electricity.
• We view the six-month cap as a short-term measure, creating room for alternative and improved ways of generating more supply.
• Regarding foreign off-takers, we believe that a more sustainable arrangement for initiating new payment plans or settling debts can be negotiated within the given cap time frame.