The Federal Government has committed to funding the revenue gap caused by the difference between the cost-reflective tariffs and the actual tariffs paid by customers of Kano Electricity Distribution Company.
This was outlined in a September 2024 Supplementary Order issued by the Nigerian Electricity Regulatory Commission under the Multi-Year Tariff Order framework for KEDCO released on Thursday, 12 September, 2024.
The supplementary order, effective from 1September, 2024, seeks to address the financial imbalances that have arisen due to external factors such as exchange rate fluctuations 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 coommission and the actual end-user tariffs during the transition to cost-effective tariffs where applicable,” the document stated.
According to NERC, several indices, including the naira to US dollar exchange rate, the Nigerian inflation rate, and the US inflation rate, were reviewed to revise 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 FG’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 detailed KEDCO’s service commitments to its customers, particularly in delivering electricity based on the Service-Based Tariff framework.
The commission emphasised that “KEDCO shall be held accountable for service deliveries per commitments under its Service-Based Tariff proposals,” which promise to provide consumers in various tariff bands with specified minimum hours of supply.
Moreover, KEDCO is mandated to upgrade its infrastructure, including the procurement of embedded generation capacity.
“KEDCO is obligated by this Order to procure a minimum of 27MW capacity of embedded generation, being 10% of its 2024 load allocation,” the order stipulated.
It added that at least 50 per cent of this embedded generation must come from renewable energy sources.
The Federal Government’s financial support during this transition period is intended to stabilise the electricity market and shield consumers from the full impact of the cost-reflective tariffs. This will allow KEDCO to continue providing essential services while also meeting its market payment obligations.
The order concluded with a commitment from NERC to monitor KEDCO’s compliance with 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.
