Recovery of Cost of Electricity Supply in the Nigerian Power Sector

Abstract

The poor performance of Power Holding Company of Nigeria (PHCN) was attributed to   low tariffs and inadequate revenue generation. The Federal Government of Nigeria is in the process of handing it over to private organizations to be involved in generation, transmission and distribution of electricity in the country under public-private partnership (PPP) arrangement. Private investors are in business to make profit and cannot afford to lose their investment. This study analyzed revenue generation in the power sector to determine the extent to which it covers the operational cost of electricity supply in the Nigerian power sector. The study also examined whether increase in tariff has significantly increased revenue, and the impact of the increase in power generated during the study period. We discovered that even though operational cost is not fully recovered in some years but the level of recovery is significant.  Also revenue has significantly changed after the application of MYTO in 2008. However, the revenue generation did not have any significant impact on power generation. The major recommendations of the paper are that tariffs set should be such that would enable the private operators who may take over the sector to recover their cost and make gains. Effort should be made to block all illegal connections and avoid high transmission and distribution losses. Good quality service which includes regular supply of electricity should be ensured to motivate consumers and increase demand for electricity.

Keywords: Cost Recovery, Power Sector, Tariffs, Public-private partnership, Power generation.