Electricity tariff: To hike or To Subsidise, There Is No Escaping The Impact On The Economy
For a country with a minimum wage of N33,000 where a single-phase prepaid meter cost N38,800, there is no escape from the injurious impact that either a hike or subsidy would have on the economy.
The Nigerian Electricity Regulatory Commission (NERC) increased the electricity tariff from N30.23 per kilowatt-hour (kWh) to N62.33 per kWh, a decision which the government has noted is ineluctable. "It will be grossly irresponsible to borrow to subsidise a generation and distribution," noted Vice President Yemi Osibanjo.
Electricity is a major component of Nigeria’s inflation rate which has galloped to 12.82% in July 2020 and is forecast to deepen in Q3 2020. A hike in tariff will raise the cost of parts, materials, goods and services thereby having a ripple effect on not just producers and consumers, but also every sector in the economy.
Nigeria's health sector will not be left out of the catalytic effect of the increase. Sensitive areas like theatre, radiology lab and mortuary will experience a surge in service bill and become unaffordable for over 40% of the population who live below the poverty margin.
According to Quadri Olaleye, the President of the Trade Union Congress (TUC), “workers are losing about 15% of their wages to various price hikes,” therefore another hike would be a bane to workers who risk losing their means of livelihood.
The decision to subdise on the other hand won't be favourable for the government coffers as the federal government owes 11 Electricity Distribution Companies (DisCos) in Nigeria over N500 billion in a tariff shortfall from electricity subsidy. If the status quo is maintained, the tariff shortfall subsidy in 2020 will be another N610 billion and electricity distribution will remain at an all-time low which it has been in the last decade.
However, the Covid19 pandemic impact on the country’s economy can’t be underestimated. It is thus inevitable that Nigeria’s inflation rate will remain high in the months to come and the proposed strike and protests by the TUC and 79 other civil society organisations and labour unions may only delay the inevitable.
