21 September 2020
One critical function of the Nigerian Electricity Regulatory Commission (“NERC”) is to regulate electricity tariffs in the Nigerian Electricity Supply Industry (“NESI”), and to further ensure that the prices charged by licensees are fair to customers. Historically, the NERC has carried out this function by issuing a series of tariff orders known as the Multi-Year Tariff Order (“MYTO”) commencing from 2008 when it attempted to set the right tariff for the NESI.
Since then, we have had some reviews of the MTYO (one major review in 2012 and two minor reviews in 2015 and 2019). Those reviews notwithstanding, there have been calls by industry stakeholders for the NERC to undertake another major review of the MYTO to account for the growing impact of inflation, adjusted foreign exchange rates, gas price, and other key economic variables and indices. The ultimate objective being to provide the NESI with a stable and cost-reflective pricing structure that allows a modest return on investment to efficient industry operators.
To this end, the NERC recently issued the Multi-Year Tariff order 2020 (“MTYO 2020” or the “Order”) which introduced the service-based tariffs and set the path towards cost-reflective tariffs in the NESI. While the recent tariff adjustment is not a silver bullet for the problems of the NESI, the NESI can only thrive on fully cost reflective tariff, and the MYTO 2020 not only creates a path to achieving this, but also ensures that the interest of the customers and the Discos are fairly balanced.