The news is a frustratingly familiar headline for Nigerians: “Nigerians to pay more for electricity.” The announcement, always made by the Nigerian Electricity Regulatory Commission (NERC), invariably sparks outrage and confusion. Why should consumers pay higher tariffs when the power supply often remains unreliable, erratic, or non-existent?
The truth is, the decision to raise electricity tariffs—a move NERC makes periodically—is not a simple punishment for consumers. It is a necessary, albeit painful, adjustment required to keep the entire power sector from collapsing under its own weight. It’s an attempt to solve the sector’s long-standing liquidity crisis.
We’re going to cut through the political noise and break down the core reasons why NERC keeps raising tariffs, focusing on the concepts that truly drive the Nigerian Electricity Supply Industry (NESI): the cost-reflective tariff and the service-reflective tariff (SRT).
The Three Economic Forces Driving Every Tariff Hike
NERC is empowered by law to ensure that the tariffs charged by Distribution Companies (DisCos) are fair to consumers but also sufficient to allow the power operators to recover their costs and earn a reasonable return. When costs rise, tariffs must follow.
A. The Uncontrollable Cost of Gas and Fuel
Nigeria generates most of its electricity from thermal power plants that run on natural gas. Gas is priced in US Dollars, even when sourced domestically. This simple fact is the single biggest driver of tariff increases.
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The Naira Devaluation: Whenever the Nigerian Naira is devalued against the US Dollar, the cost of gas for power generation instantly skyrockets. NERC has cited massive spirals in the exchange rate as a primary factor in recent major tariff hikes. The cost of generating electricity grows by the same percentage the Naira falls.
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Rising Global Gas Prices: Even if the exchange rate were stable, the actual dollar price of gas is determined by global markets. Higher global energy prices translate directly into higher operating costs for Generation Companies (GenCos).
B. The Retreat of Government Subsidies
For years, the Nigerian government shielded consumers by providing subsidies—paying the difference between the Cost-Reflective Tariff (CRT) (the true cost of electricity) and the Allowed Tariff (AT) (what consumers actually pay).
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Unsustainable Fiscal Burden: The government was spending trillions of Naira (e.g., hundreds of billions annually) on these subsidies. This is money that couldn’t be spent on healthcare, education, or defense.
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NERC’s Mandate: The new approach, supported by government policy, is to gradually eliminate or drastically reduce subsidies. By shifting the financial burden to consumers who can afford it, the government frees up scarce resources and allows the market to become self-sustaining.
C. The Need for Investment and Liquidity
The entire power sector suffers from a massive liquidity crisis. GenCos are often underpaid by the DisCos, who in turn struggle with poor collections and losses.
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No Money, No Gas: If the DisCos do not remit enough revenue, the GenCos cannot afford to pay for gas or maintain their machines. This leads directly to a drop in power generation and supply.
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Attracting Investment: International and local investors are unwilling to inject the billions of dollars needed to fix the grid (transmission and distribution) if the sector is not profitable. Cost-reflective tariffs are essential to show investors that the sector can guarantee a reasonable return on investment.
The Game Changer: The Service-Reflective Tariff (SRT)
Recognizing the public outcry of “No Light, No Pay,” NERC introduced the Service-Reflective Tariff (SRT) model. This is the mechanism used to implement the actual rate hikes while attempting to link payment to service quality.
A. The Banding System Explained
The SRT breaks all electricity consumers into bands based on the minimum guaranteed number of hours of supply they are supposed to receive daily.
| Tariff Band | Minimum Guaranteed Daily Hours | Tariff Rate | Focus |
| Band A | 20 Hours and above | Highest Rate (e.g., $\text{₦}200+/\text{kWh}$) | Must be cost-reflective |
| Band B | 16 Hours and above | High Rate | Service improvement expectation |
| Band C | 12 Hours and above | Medium Rate | Service improvement expectation |
| Bands D & E | Below 12 Hours | Rates often frozen or heavily subsidized | Protects the poor and underserved |
The most sensational recent tariff hikes, some reaching over 300% (e.g., $\text{₦}68/\text{kWh}$ to over $\text{₦}200/\text{kWh}$), are typically focused only on Band A consumers.
B. The Crucial Implication
The SRT represents a radical policy shift: you pay for the quality of service you receive. If your DisCo fails to deliver the promised 20 hours for Band A, NERC is mandated to downgrade that area to a lower band, which also lowers the legal tariff rate.
The hike’s intent is to create a financially viable “island” of customers (Band A) who pay the actual cost of electricity. The revenue from these customers is meant to provide the cash flow needed for DisCos to invest in infrastructure, theoretically allowing them to improve supply and move other customers from lower bands into higher bands (and higher tariffs) over time.
The Path Forward: What Consumers Demand
Nigerians are not inherently opposed to paying more; they are opposed to paying for a service that is consistently poor. The major consumer demands remain:
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Metering Mandate: NERC must compel DisCos to close the massive metering gap. Estimated billing is seen as legalized theft and destroys consumer trust. If people cannot monitor their consumption, they will always resist tariff increases.
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Enforcement of Compliance: The Band A category must be strictly and transparently monitored. NERC must swiftly enforce penalties, downgrading feeders that fail to meet the 20-hour benchmark. Without strict regulation, the SRT simply becomes another means of overcharging.
The reality is that future tariff hikes are inevitable as long as the Naira is volatile and subsidies are being withdrawn. The only way to make them palatable is to ensure that the higher cost is directly and demonstrably tied to tangible, reliable power supply.
