Africa Check: Are electricity tariffs in Nigeria really the lowest in Africa?

When the Nigerian newspaper Vanguard recently ran a report headlined, “Power supply: Nigeria electricity tariff, lowest in Africa,” an Africa Check reader asked us to look into the claim.

The snappy headline diverged slightly from the content of the story which stated that, despite recent hikes, Nigeria still has “one of the lowest electricity tariffs in Africa”. The story quoted an analyst claiming that: “countries like Liberia, Bukina Faso, Senegal, Mali, among others, have higher electricity tariffs than Nigeria”.

So does Nigeria have the lowest or “one of the lowest” electricity tariffs in Africa? And is it useful to compare electricity tariffs across Africa?

What data was the claim based on?

The analyst quoted in the Vanguard’s article, Oludare Oduale, told Africa Check that his claims were based on a 2005 comparative chart from a website called the Encyclopedia of Nations. That comparison showed that out of 22 African countries, Nigeria had the third lowest electricity tariff on the continent.

However, this data – if it is accurate -  is almost a decade out of date. A more recent study, published by The World Bank in 2011, compared tariffs in 27 sub-Saharan African countries between 2004 and 2008. It found a huge range in the residential prices applied across the continent, but does show Nigeria to be among the lowest for residential, commercial and industrial tariffs.

'A pointless exercise'

However, Andrew Etzinger, spokesman for South Africa’s electricity utility Eskom, told Africa Check that attempting to compare and rank electricity tariffs across African was a “pointless exercise”.

And, according to Etzinger, having the “lowest electricity tariff in Africa” may not be something to brag about.

“Countries which charge more for electricity usually have proper billing management, well maintained infrastructure and are able to provide a reliable service,” he explained.

“You can’t compare the experience of the average South African home with the average Nigerian home. They are completely different.”

Tariffs devoid of context

The 2011 study published by the World Bank, revealed that for average residential consumption levels of 100 kilowatt hours per month Nigeria’s tariff was 3.4 US cents/kWh and South Africa’s tariff was 3.6 US cents/kWh. However, a ranking based on tariffs provides no insight into the energy sector, the quantity of power being produced or its quality.

In 2011, South Africa’s population was estimated at 52 million and 85% of people had access to electricity, according to the latest census. There has been controversy over estimates regarding the size of Nigeria’s population. But the most reliable estimates, which cross-referenced numerous population estimates, placed the country’s population at just over 134 million in 2006. The World Bank estimates that only 48% of Nigerians have access to electricity. A cheap electricity tariff isn’t much consolation to half of Nigeria’s citizens who don’t have access to electricity.

If you use South Africa and Nigeria as examples, there are also stark differences in the ability of the two countries to meet their electricity demands. On 7 July 2014, Nigeria’s Presidential Task Force on Power estimated that electricity demand in Nigeria stood at 12,800 MW, while the country was only able to produce 3,400 MW. The task force was set up in June 2010 by President Goodluck Jonathan to drive reform of the country’s power sector.

In comparison, according to Eskom, South Africa’s electricity demand on 7 July 2014 stood at 33,604 MW and its capacity at 36,000 MW.

Although the countries’ tariffs are similar, Nigeria’s population is nearly three times that of South Africa but it is only able to produce a tenth of its electricity supply and is unable to meet demand.

Tariffs are too low to cover costs

Nigeria’s tariffs have historically been too low to cover the basic operating costs of producing the country’s electricity.

Nigeria’s Presidential Task Force on Power noted that ‘the revenues generated by very low electricity tariffs could not even cover the cost of producing and supplying power”.

In 2009, Prasad Tallapragada, a senior energy specialist and team leader in the World Bank’s Nigeria Energy Programme, noted that Nigeria had one of the lowest electricity tariffs in the world. The tariff of about 4.3 US cents/KWh had remained constant since 2002.

But the low tariff, together with an absence of proper metering and low collection rates, meant that basic operating costs were not met. As a result, according to Tallapragada, there was a yearly revenue gap that was historical filled by government transfers.

When the lights go out

Lack of generating capacity, blackouts and voltage variations have resulted in many residential and commercial customers in Nigeria resorting to producing their own power with private generators.

In 2011, self-generation was estimated to produce between 4,000 and 8,000 MW. Even the conservative, outdated estimated of 4,000 MW in 2011 is more than Nigeria’s current grid supply of 3,400 MW.

A 2011 World Bank survey of 3,000 Nigerian business revealed that the biggest problem they reported was unreliable power supply. Businesses reported that they experienced average power outages of 8 hours per day. 88% of retail and manufacturing businesses survey reported owning private generators. And the manufacturing businesses surveyed reported that approximately 69% of their total electricity usage was produced by private generators. The expenses incurred running private generators cost the average business the equivalent of more than 4% of their sales.

Individuals lucky enough to be on the grid are also used to being plunged into darkness. The Power Holding Company of Nigeria (PHCN) has earned itself the moniker “Please Have Candles Nearby”.

Many houses also use generators, though it is hard to judge how much those cost individuals to run. “The cost on an individual basis fluctuates based on size of generator, loading at any given time, fuel source (petrol is subsidised in Nigeria, diesel is not), age and mechanical state of the generator,” says Erik Fernstrom, lead energy specialist for Africa at the World Bank. “We therefore usually use a range of 30-50 US cents / kWh for smaller units as a broad estimate."

Conclusion – Nigerian power may be cheap, but is also very unreliable

Nigeria may have one of the lowest electricity tariffs in Africa – but it’s not something to be proud of. Comparisons based solely on electricity tariffs are devoid of insightful context.

Access to electricity in Nigeria remains low and the country is unable to produce enough electricity to meet demand.

The low tariffs may actually be hampering the upgrading of the system. Historically, electricity tariffs have been so low that they are not sufficient to cover the operating costs of producing the electricity.

And the low tariffs are little comfort to individuals and business who regularly have to fork out extra money to keep their private generators running when the lights go out.

Edited by Eleanor Whitehead

Additional reading

Factsheet: Nigeria’s population figures

Photo: Commuters and traders at a market in Oshodi, a surbub in Lagos, South West Nigeria, Wednesday 29 October 2003. Lagos is the 6th most populous city in the World with a population of over 12 million people. EPA/ONOME OGHENE