Nigerian businesses outraged by electricity tariff increase

Nigeria's federal government has approved a 240% hike in electricity tariffs for those who are classified as Band A electricity users. 

In Nigeria, Band A refers to customers who receive between 20 and 24 hours of electricity supply daily, which mainly means businesses.

Customers in Band A will now be charged 225 Nigerian nairas (€0.17, $0.18) per kilowatt hour (KWh), marking a significant increase from the previous rate of 68 Naira.

Nigerian companies were quick to express their anger at this hike in tariffs. The manufacturing sector, in particular, has warned that many businesses could go bankrupt following the move and has called for a reversal.

Nigerian Minister of Power Adebayo Adelabu told reporters, however, that the government's decision on the new tariffs was final and irreversible, arguing that the government was already subsidizing a significant portion of the cost of electricity.

"[T]he government provides a large portion of the cost of producing, transmitting, and distributing power," Adelabu explained.

"I must tell you that as of today, before the introduction of the tariff increase, the government was subsidizing nothing less than 67% of the cost of producing, transmitting and distributing electricity in Nigeria."

Nigeria's complex energy crisis

Addressing the country's energy crisis is a major part of Nigerian President Bola Tinubu's reform agenda.

Bola hopes to rejuvenate the national power grid by investing public money back into the sector instead of continuing to subsidize electricity for those who cannot afford to pay their bills. 

This is why he removed a series of existing electricity subsidies after scrapping a popular but costly fuel subsidy earlier.

However, these measures have also cost him popularity points, as the electricity sector continues to face many structural issues, including a failing grid, gas shortages, high debt and the destruction of parts of its infrastructure, crippling three-quarters of the country's 12,500 megawatts (MW) of capacity.

Most Nigerians now have to rely on expensive diesel-powered generators to access most of their power, as Africa's most populous nation had to learn how to deal with constant power shortages.

Manufacturers feel the squeeze

Some manufacturers believe that the new tariff hike will compound the prevailing economic challenges they're already facing.

Alhaji Ibrahim Abdullahi, a baby food manufacturer, told DW that the government's decision was lacking empathy and compassion.

"This is coming from a government that has all along been singing and promising that they are pro-manufacturers," he said.

Nelson Patric, a manufacturer of household materials in Maiduguri in Borno state, stressed that he had to scale down some of his operations to cope with the new tariff.

"Due to the increase in tariff I have to minimize some things and get some income to my business," he said.

Perpetuating inflation

But forcing manufacturers to reduce their operational output could have a negative impact on the inflation situation in the country, some experts have warned.

Dr. Murtala Abdullahi Kwara, an economist from Umaru Musa Yar Adua University in Katsina, told DW that the tariff hike will affect food prices, cost jobs and might even force some companies to close for good.

"This situation is going to worsen the inflationary situation that is already existing in Nigeria," he said, adding that many businesses unable to cope with rises in their operational costs are now shutting down.

"A reasonable percentage of these small and medium companies are going to be out of business in the near future because their cost of production is going to increase, which means the price of their products is also going to increase, and many people will stop buying their product," Kwara added.

"[The government] wants everything Nigerians consume to be manufactured domestically. How? How are we going to manufacture these things when the enabling environment is not there?"

A reform without a plan

Meanwhile, prominent opposition politician and former vice president Atiku Abubakar has already warned that the government's decision to hike tariffs could plunge many Nigerians deeper into crisis.

"The increase in electricity tariff comes at a time when Nigerian citizens are going through excruciating difficulties," he said in a statement. "As usual, the government is unleashing another dose of reforms without adequate notice and without an adequate post-reform plan to mitigate the pain."

But Minister of Power Adelabu keeps insisting that the hikes will not affect the majority of consumers — despite mounting evidence to the contrary.

Edited by: Sertan Sanderson