The Federal Government has pledged to cover the revenue shortfall resulting from the disparity between cost-reflective tariffs and the actual tariffs paid by customers of the Kano Electricity Distribution Company (KEDCO).
This commitment was detailed in a September 2024 Supplementary Order issued by the Nigerian Electricity Regulatory Commission under the Multi-Year Tariff Order framework for KEDCO, which was released on Thursday.
Effective from September 1, 2024, the supplementary order aims to rectify financial imbalances caused by external factors, including exchange rate fluctuations and inflation.
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“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 coommission and the actual end-user tariffs during the transition to cost-effective tariffs where applicable,” the document stated.
NERC stated that various factors, including the naira-to-US dollar exchange rate, Nigerian inflation rate, and US inflation rate, were assessed to adjust KEDCO’s revenue requirements and tariffs for the remainder 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 per cent for July 2024 was applied for projections.
The Federal Government’s intervention will enable KEDCO to fulfill its obligations despite the financial 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 outlined KEDCO’s service commitments to its customers, particularly in accordance with the Service-Based Tariff framework.
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The commission stressed that “KEDCO will be held accountable for meeting the service delivery commitments outlined in its Service-Based Tariff proposals,” which guarantee specific minimum hours of electricity supply to consumers across various tariff bands.
Additionally, KEDCO is required to enhance its infrastructure, including acquiring embedded generation capacity.
The order stipulates that KEDCO is required to procure a minimum of 27MW of embedded generation capacity, which represents 10% of its 2024 load allocation.
Additionally, at least 50% of this embedded generation must be sourced from renewable energy.
The Federal Government’s financial support during this transition period is aimed at stabilizing the electricity market and shielding consumers from the full impact of cost-reflective tariffs. This support will enable KEDCO to continue delivering essential services while fulfilling its financial obligations.
The order also includes a commitment from NERC to monitor KEDCO’s adherence to its service obligations.
“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.
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