The federal government has agreed to pay the revenue gap created by the difference between cost-reflective prices and real tariffs paid by Kano Electricity Distribution Company users.
This was revealed in a September 2024 Supplementary Order issued by the Nigerian Electricity Regulatory Commission under KEDCO’s multi-year tariff order framework, which was announced on Thursday.
The supplementary order, starting September 1, 2024, intends to rectify financial imbalances caused by external causes such as currency rate changes and inflation.
“The FGN policy on subsidy and electricity tariffs provides for a gradual transition to cost-reflective end-user tariffs with safeguards for the less privileged electricity 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 document stated.
According to NERC, many indices, including the naira-to-US dollar exchange rate, Nigerian inflation rate, and US inflation rate, were assessed in order to update KEDCO’s income requirements and rates for the rest of 2024.
For example, “The Naira to the US Dollar exchange rate of N1,601.50/US$1 has been adopted for September–December 2024,” and the Nigerian inflation rate of 33.40 percent for July 2024 was applied for projections.
The federal government’s intervention will ensure that KEDCO can meet its obligations despite these cost pressures.
NERC clarified, “FGN intervention from budgetary appropriation and other sources for funding tariff shortfall shall be applied by NBET to ensure 100% settlement of market invoices as issued by generating companies (GenCos).”
The order also defined KEDCO’s service commitments to its consumers, particularly in terms of delivering electricity under the service-based tariff structure.
The commission stressed that “KEDCO shall be held accountable for service deliveries per commitments under its service-based tariff proposals,” which guarantee to give consumers in certain tariff bands specific minimum hours of supply.
Furthermore, KEDCO is required to improve its infrastructure, which includes the procurement of embedded generation capacity.
“KEDCO is obligated by this order to procure a minimum of 27 MW of embedded generation, being 10% of its 2024 load allocation,” the order stipulated.
It further stated that at least 50% of this embedded power must originate from renewable energy sources.
The Federal Government’s financial assistance during this transition phase aims to stabilise the electricity market and protect consumers from the full impact of cost-reflective prices.
This would enable KEDCO to continue providing crucial services while also meeting its market payment obligations. The ruling concluded with NERC’s commitment to monitor KEDCO’s compliance with its service duties.
“The commission shall continue to leverage technology to directly obtain data on the hours of supply on each Band A feeder from the head-end system of KEDCO for near real-time monitoring of service,” NERC stated.
