Nigeria's consumers upset at electricity rate hike

Electric wires are pictured in Ojuelegba district in Nigeria's commercial capital of Lagos, June 18, 2018. [Reuters]

A sudden hike in electricity rates in Africa's most populous country, Nigeria, has sparked a backlash.

Until now, Jude Okafor has spent an average $25 on electricity to run a frozen fish and meat business that he started in 2021. But since last week, when the government announced a rate hike of nearly 300 percent for electricity, Okafor says running his business has been tough.

"There is no escape. Light has gone high, fuel has gone high. And for a businessman, there's no way we can cope with that,” Okafor said. “If there's no light or fuel to ice our fish, what are we going to do? Our business is running down. This is [a] first-class act of wickedness."

The Nigerian Electricity Regulatory Commission (NERC) announced the price change last Wednesday and said only its bigger power consumers, about 15 percent overall, would be affected by the subsidy cut.

Authorities said consumers in that category enjoy up to 20 hours of electricity a day and that the rate hike was only fair to customers who receive fewer hours of light.

The decision to remove electricity subsidies is part of President Bola Tinubu's reform drives to ease pressure on the economy.

Authorities argue that state-controlled electricity rates are too low to attract new investors or allow distribution firms to recover their costs, leaving the sector with huge debts.

Economic analyst Ogho Okiti says the government’s move is a good one.

"The government is not able to pay those subsidies on time, and because they're not able to [pay] them on time, gas companies are withdrawing their gas supplies,” Okiti said. “The timing is right. I think the government had waited till April to do this because they expect power supply to improve from now because of [the] rainy season."

But the decision is being criticized by many, including businesses, manufacturers and workers' unions.

This week, the Abuja chapter of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, or NACCIMA, said the decision would threaten the survival of many thousands of businesses already struggling to cope with soaring inflation.

"First of all, the timing is wrong,” said Dele Oye, national president of the NACCIMA. “We all know that electricity is underpriced, but to some extent, there must be some level of subsidy. There's nowhere in the world where there's no subsidy. We cannot compete if we have to pay everything at market value when we don’t see market value service from the government. We do our roads. We do our security as investors."

Nigeria last revised electricity rates four years ago. Authorities say the country could save up to $2.6 billion from the subsidy removal.

But a similar reform applied on petrol last year worsened a cost-of-living crisis for many Nigerians after the annual rate of inflation rose to more than 30 percent — its highest level in three decades.

Critics will be watching to see how this newest subsidy removal unfolds.