The Federal Government has pledged to address the revenue gap experienced by the Kano Electricity Distribution Company (KEDCO) due to the disparity between cost-reflective tariffs and the actual tariffs paid by customers. This commitment was detailed in a recent September 2024 Supplementary Order from the Nigerian Electricity Regulatory Commission (NERC), aimed at rectifying financial imbalances stemming from external factors such as exchange rate fluctuations and inflation.
Effective September 1, 2024, this supplementary order outlines a gradual transition to cost-reflective end-user tariffs, with protective measures in place for economically vulnerable electricity consumers. The document states that the Federal Government will fund the revenue shortfall resulting from the differences between approved cost-reflective tariffs and the actual end-user tariffs throughout this transition period.
NERC has conducted a thorough review of several indices, including the exchange rate of the naira to the US dollar and the Nigerian inflation rate, to adjust KEDCO’s revenue requirements and tariffs for the remainder of 2024. Notably, the naira has been pegged at N1,601.50 to US$1 during the period from September to December 2024, with a projected inflation rate of 33.40 percent for July 2024 factoring into the calculations.
This government intervention is crucial for KEDCO to fulfill its obligations despite ongoing cost pressures. NERC has clarified that funding for the tariff shortfall will be sourced from the Federal Government’s budgetary allocations, ensuring that KEDCO can settle 100% of its market invoices issued by generation companies.
The order also emphasizes KEDCO’s service commitments to its customers, reinforcing the importance of adhering to the Service-Based Tariff framework. KEDCO will be held accountable for delivering electricity in alignment with its service pledges, which guarantee specified minimum hours of supply across different tariff bands.
Additionally, KEDCO is responsible for upgrading its infrastructure, including acquiring embedded generation capacity. The order mandates KEDCO to secure at least 27MW of embedded generation, representing 10% of its 2024 load allocation, with a requirement that a minimum of 50% of this capacity comes from renewable energy sources.
The support provided by the Federal Government during this transition period aims to stabilize the electricity market, protecting consumers from the full financial effects of cost-reflective tariffs. This initiative will enable KEDCO to maintain essential services while fulfilling its market payment obligations.
NERC concluded the order by assuring that it will closely monitor KEDCO’s adherence to its service responsibilities. The commission intends to utilize technology for direct data acquisition on supply hours from KEDCO’s management systems, enabling real-time oversight of service delivery.
