Federal Government’s Financial Support: Closing the Revenue Gap for Kano Electricity Distribution Company....KINDLY READ THE FULL STORY HERE▶
The Federal Government has taken a significant step to address the financial challenges facing the Kano Electricity Distribution Company (KEDCO) by committing to fund the revenue gap caused by discrepancies between cost-reflective tariffs and the actual tariffs customers pay. This initiative was highlighted in a September 2024 Supplementary Order issued by the Nigerian Electricity Regulatory Commission (NERC) as part of the Multi-Year Tariff Order framework for KEDCO.
Effective from September 1, 2024, this supplementary order aims to rectify the financial imbalances that have emerged due to various external factors, including exchange rate fluctuations and inflation. The government’s policy on electricity tariffs is designed to gradually transition to cost-reflective end-user tariffs while safeguarding vulnerable electricity consumers.
The NERC’s document states, “Accordingly, the Federal Government has committed to funding the revenue gap arising from the difference between cost-reflective tariffs approved by the commission and the actual end-user tariffs during the transition to cost-effective tariffs where applicable.”
To determine the necessary revisions in KEDCO’s revenue requirements and tariffs for the remainder of 2024, NERC reviewed several economic indicators. For instance, the exchange rate of the naira to the US dollar has been set at N1,601.50/US$1 for the period of September to December 2024. Additionally, the Nigerian inflation rate, currently at 33.40 percent as of July 2024, was also factored into the projections.
The Federal Government’s intervention will allow KEDCO to meet its financial obligations despite ongoing cost pressures. NERC clarified, “FGN intervention from budgetary appropriation and other sources for funding tariff shortfall shall be applied by NBET to ensure 100% settlement of market invoices as issued by generating companies (GenCos).”
The supplementary order also outlined KEDCO’s commitments to its customers, particularly in adhering to the Service-Based Tariff framework. NERC emphasized that KEDCO would be held accountable for delivering services according to its Service-Based Tariff proposals, which guarantee specific minimum hours of electricity supply for consumers across various tariff bands.
To enhance service delivery, KEDCO is required to upgrade its infrastructure, including the procurement of embedded generation capacity. The order specifies, “KEDCO is obligated by this Order to procure a minimum of 27MW capacity of embedded generation, being 10% of its 2024 load allocation.” Furthermore, at least 50% of this embedded generation must come from renewable energy sources, reflecting a commitment to sustainability.
The Federal Government’s financial backing during this transitional phase aims to stabilize the electricity market and shield consumers from the full impact of the cost-reflective tariffs. This support will enable KEDCO to continue delivering essential services while fulfilling its market payment obligations.
