Adebayo Adelabu, minister of power, says investors are now showing interest in the electricity sector because the federal government increased electricity tariff for Band A customers.

On April 3, the Nigeria Electricity Regulatory Commission (NERC) approved an increase in electricity tariff for customers under the Band A classification.

The commission said customers under the category, who receive 20 hours of electricity supply daily, will now pay N225 per kilowatt (kW), starting from April 3, up from N66.

Appearing before the senate committee on power on Monday, Adelabu said the federal government could not afford to pay subsidies on power anymore.

“The government will be needing about 2.8 trillion to subsidise electricity this year, and we look at the government budget itself, we look at the provision for subsidy, we discover and confirm that the government could not afford to pay,” he said.

“This government budget is 28 trillion naira. N2.8 trillion is a subsidy for power separately. It is over 10 percent of the budget, which is not realistic for us to ask the government to pay.

“For this sector to be revived, the government needs to spend nothing less than $10 billion annually in the next 10 years. This is because of the infrastructure requirement for the stability of the sector, but the government cannot afford that.

“And so we must make this sector attractive to investors and to lenders. So for us to attract investors and investment, we must make the sector attractive, and the only way it can be made attractive is that there must be commercial pricing.

“If the value is still at N66 and the government is not paying subsidy, the investors will not come. But now that we have increased the tariff for A Band, there is interest shown by investors.”

Adelabu said more than N1.3 trillion is being owed to generating companies.

“There has not been funding for this subsidy. And this has culminated into each debt yearly now for the operators in the industry, especially the generating companies and the gas supply companies,” he said.

“As of the last estimate, we said 1.3 trillion naira is being owed to the five generating companies, while the legacy debt of the gas supply companies stood at $1.3 billion in 2023.

“The total tariff, the total subsidy for the tariff, was supposed to be N720 billion. The government only funded N400 billion living a total of over 300 billion brought forward to 2024.

“And at the current pricing regime, we estimated that it will retain the tariff at current rates.”

Adelabu added that the high indebtedness is the reason the government removed subsidies on electricity tariff.

Former Microsoft CEO Bill Gates claims he is collaborating with the federal government (FG) on an identity technology platform to facilitate tax collection.

Gates spoke during a meeting with President Bola Tinubu on the sidelines of the World Economic Forum (WEF) in Saudi Arabia on Sunday.

In a statement, Gates mentioned that technology would facilitate tax collection and improve payment efficiency, according to Ajuri Ngelale, the presidential aide.

“We are working with Mr. Wale Edun, the Coordinating Minister of the Economy and Minister of Finance, on digitisation,” Gates said.

“Before you came into office, there were a few things attempted in identity management. But they have been very scattered. There have been multiple identification systems.

“Now, there is a plan to take that technology called MOSIP and use it for this identification platform so that people can get digital benefits. We are providing support for that, and we can provide more support.

“With MOSIP ID, there is potential application in all government payment programmes.

“It helps with payment efficiency and bank accounts, and eventually, when everyone is using that, it makes tax collection easier.

“That benefit will take a few years. However, there will be more bank accounts, more financial inclusion, and effective government payment programmes.”

Also the co-chair of the Bill and Melinda Gates Foundation, the businessman said Nigeria has the capacity to manage “this system and related-technological systems as the nation brims with talented youths”.

In his remarks, Tinubu said his administration will look into the technology proposed and work on it further.

He said technology is a potent weapon against corruption and financial impropriety in public service.

The president reiterated his unwavering commitment to providing reliable technology that will support a national consumer credit system and many other critical interventions for all Nigerians.

He said resistance is often expected when efforts are made to strengthen systems and forestall malfeasance.

“Technology is the enemy of fraud, corruption, and irregularity. We have been working hard on improving technology,” Tinubu said.

“There is always the initial resistance.

“Corruption, self-interest, and fraudulent activity will always be an enemy, but when you bend that curve, you will receive the benefit. The nation will receive the benefit.”

Recounting how he deployed technology to enhance the revenue base of Lagos state during his time as governor, Tinubu said his administration must invest in technology, especially as the state aims to achieve a trillion naira revenue target.

Nigeria’s telecom providers, notably MTN Nigeria and Globacom, through the Nigerian Communications Commission (NCC), have requested permission from the Federal Government to increase their rates.

The move occurred after some of the operators had to report losses the previous year due to rising energy prices and foreign exchange losses.

Less than 24 hours had passed since MultiChoice, a pay television provider in South Africa, increased its pricing when the telecoms proposed to do the same. A number of businesses, such as breweries and discos, have also increased their pricing recently.

On Thursday, the telcos, under the aegis of the Association of Licensed Telecom Companies of Nigeria and the Association of Telecom Companies of Nigeria, issued a joint statement asking the government to expedite the approval.

The two bodies in their statement explained, “Despite the adverse economic headwinds, the telecommunications industry remains the only industry yet to review its general service pricing framework upward in the last 11 years, primarily due to regulatory constraints.

“For a fully liberalised and deregulated sector, the current price control mechanism, which is not aligned with economic realities, threatens the industry’s sustainability and can erode investors’ confidence.”

The associations called on the federal government to facilitate a constructive dialogue with industry stakeholders to address pricing challenges and establish a framework that balances consumers’ affordability with operators’ financial viability.

The telecom industry appears to be among a few sectors that have yet to review their prices despite the rising inflation in the country amid other economic challenges. They blamed this on the regulatory restraints that have been preventing them from pricing appropriately.

Efforts to reach the commission’s Director of Public Affairs, Reuben Mouka, on whether the request will be considered proved abortive as of press time on Thursday. There were no responses to calls, WhatsApp messages, and text messages sent to his line.

The NCC regulates prices in the telecom industry, and telecom operators are not allowed to implement any price changes without the regulator’s approval. The regulator has said a cost-based study is being conducted to determine if it would approve price increments for the operators.

The Chairman, Association of Licensed Telecoms Operators of Nigeria, Gbenga Adebayo, said in a publication on Thursday that cost reflective tariff was non-negotiable.

“We have seen the impact of price control in other segments of the economy, like power. If providers cannot operate sustainable business models, then they’ll stop investing. When that happens, the existing infrastructure starts to crumble.

“For power, a consumer can choose to take ownership of the solution by buying a generator, or a solar panel. For fuel, the government can step in as a provider of the last resort and manage a subsidy regime that mitigates the impact on the population. Those options are not available in the telecoms sector. There is no self-help solution,” he explained.

The industry has faced significant increases in operational costs occasioned by the scarcity of foreign exchange, network expansion, and upgrades, which have also negatively affected the bottom lines of the operators.

Investment in the sector has also dwindled to $134m in 2023 from $456.8m in the previous year, a decline of $322m, according to the National Bureau of Statistics.

The decline represented a decrease of approximately 70.5 percent.

MTN Nigeria Plc has disclosed a substantial loss of N740.4bn for the fiscal year 2023, a notable surge from the N81.8bn loss reported in 2022, marking an alarming 804 per cent increase, equivalent to N658.6bn.

This drastic financial setback is primarily attributed to the effects of the foreign exchange market liberalisation that commenced in June of the previous year.

MTN clarified that it applied an official exchange rate of N907.11 per dollar, based on NAFEM (Nigerian Autonomous Foreign Exchange Market), as of December 31, 2023.

This implies that the reported loss might escalate further if the prevailing exchange rate between the naira and dollar remains unchanged by the end of March, coinciding with the publication of its Q1 results.

Meanwhile, Airtel Africa reported a 99.6 per cent decline in its post-tax profit to $2m at the end of the nine months ended December 2023 from $523m at the end of the same period in 2022.

The key driver behind these losses was the liberalization of the forex market in June 2023, which led to a 96.7 per cent devaluation of the naira from N461 per dollar in December 2022 to N907.1 per dollar by the end of 2023, MTN disclosed in its audited financial results for 2023.

According to The Punch, the President of Telecommunications Companies of Nigeria, Tony Izuagbe, explained that telcos are running at a loss and may not survive this year should tariffs remain the same.

Izuagbe warned that if urgent action is not taken, many telecom operators may be forced to shut down operations, leaving millions of Nigerians without access to vital communication services.

He emphasised that the current tariff regime is insufficient to cover the costs of providing services, and urged regulatory bodies to address the industry’s challenges and support operators in maintaining the quality of service.

The current price of diesel, ranging from N1300 to N1500 per litre, has placed a substantial financial burden on operators, who consume an average of 2000 to 3000 litres per month per base station, Izuagbe analysed.

In 2023, telecommunication companies spent about N429.43bn on diesel for base stations, an increase of 34.57 per cent from the N319.11bn they spent in 2022. This is because diesel prices soared in 2022 and remained at an elevated level in 2023.

In 2022, the telecoms industry noted, “The telecommunications industry has been heavily financially impacted following Nigeria’s economic recession in 2020 and the effect of the ongoing Ukraine/Russia crisis. This has increased energy costs, (which constitutes an appreciable 35 per cent of ALTON’s members’ operating expenses).”

Telcos use an average of 40 million litres of diesel per month to power telecom sites.

ATCON President expounded, “We all know the challenges of inflation, which is affecting operators. Let’s take a typical diesel price, for example, which is sold at N1500 per litre or even N1300. On average, a typical base station would use about 2000–3000 litres in a month.”

Analysing further, he stated, “The cost per gigabyte of data in Nigeria is about N250. By the time you look at the expenses incurred in maintaining a base station, you will discover that revenue will not be enough to cover them.

“This excludes colocation and infrastructure services. By the time they mark up their charges, the operators will also be suffering.”

He revealed that many operators were already cutting back on infrastructure investments to mitigate losses and warned that if drastic measures are not taken, many may not survive the year.

Izuagbe acknowledged that the NCC has been working to address some of the challenges facing the industry, but emphasized that more needs to be done to ensure the survival of telecom operators.

He described the situation as a “chicken and egg scenario,” where it is difficult to improve the quality of service when operators are struggling to survive.

He urged the NCC to take further action to address the challenges facing the industry, including the issue of compensation for damaged infrastructure, to ensure that telecom operators can provide the quality of service that Nigerians deserve.

A commission official, speaking anonymously due to the sensitive nature of the issue, conveyed that the operators were left with no choice but to seek a tariff review approval from the commission. However, such approval might not be granted due to the prevailing high cost of living.

The official said, “Telecommunications cannot do anything without the commission’s permission. There can’t be any increment in cost without regulatory approval. That is what the law says. They can only keep agitating. The telecommunications sector is unlike other sectors that can increase their prices at any time without notice or recourse.”

Meanwhile, some subscribers and economists has shown support for the move by telecom operators to increase tariffs to stay afloat.

As of March 2024, industry statistics obtained from the NCC website showed that there are at least 219 million subscribers.

The President of the National Association of Telecommunications Subscribers, Adeolu Ogunbanjo, called for a marginal increase in tariff prices.

According to Ogunbanjo, the increase is necessary to help operators offset the rising cost of operations, including the purchase of equipment in dollars, which has been affected by the fluctuating exchange rate, and the removal of fuel subsidies, which has led to an increase in the price of diesel used to power base stations.

The NATCOM president acknowledged that telecom companies were facing significant challenges, including the need to improve services, deploy infrastructure, and power their base stations.

He noted that a slight increase in tariff prices would not be detrimental to subscribers but would rather help operators continue providing services and investing in infrastructure.

A slight increase in tariff prices would not be detrimental to subscribers but would rather help operators continue providing services and investing in infrastructure, Ogunbanjo pinpointed.

“A slight increase will not be bad so as not to suffocate the operators. They need to improve services, they need to deploy infrastructure, and it will be difficult if the situation doesn’t improve. They have to continue to power their base stations. Recently, they had issues with the undersea cable. All these issues have compounded their woes,” he buttressed.

Professor of Economics at Olabisi Onabanjo University, Sheriffdeen Tella, said that the move was long overdue.

The cost of operation for telecom operators has increased significantly, making it difficult for them to sustain their businesses, the academic stated.

“When I see the cost of sending text messages, I discover that they haven’t increased their charges. Generally, the cost of operation has increased, and it’s the government that is supposed to reduce the cost of energy, the interest rate, and all those indicators.

“So, since the government is not doing that, they cannot stop them. So there is a need for the government to review its policies. The need to intervene generally in the economy,” he elaborated.

Tella also highlighted the need for subscribers to adjust to the new reality and understand that operators cannot continue to operate at a loss.

He warned that if the situation is not addressed, more companies may be forced to leave the market, which would have negative consequences for the economy.

An economist, Aliyu Ilias, stated, “The move is justifiable, and the telcos and the NCC have been doing well. The way they have even approached the situation is commendable.

“The environment they operate in is not different from the environment others are operating in. It is a tight move, but the government needs to work with them to know the percentage they intend to increase the tariff,” Ilias argued.

Credit: The Punch