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Nigerian electric rates prompt review

disclaimer: image is for illustration purposes only
by Staff Writers
Abuja, Nigeria (UPI) Aug 18, 2010
High Nigerian electrical bills for consumers are prodding government intervention.

Responding to consumer unrest, the government has directed the Nigerian Electricity Regulatory Commission to review its multiyear tariff order to find a more equitable pricing arrangement, This Day reported Wednesday.

Under the multiyear tariff order, the market is to determine electricity tariff pricing. In order to shield low-income consumers from massive bills, in 2008 NERC introduced a phased, three-year subsidy regime, which is schedule to be phased out in 2011 with the eventual introduction of market-determined tariffs.

Vice President Mohammed Namadi Sambo ordered a review of current pricing policies at a meeting of the Presidential Action Committee on Power at the State House in the capital Abuja.

According to Sambo, more than $ 1.175 billion was initially allocated for the subsidy at its outset, but he is seeking a review because the tariff reduction is not benefitting the poorest elements of society that it was designed to benefit. Sambo did not reveal the subsidy's proposed reduction.

Sambo added that the National Integrated Power Project is a joint effort of both the federal and state governments and further directed the ministries of Finance and Power to delineate the ownership of the two tiers between each state and the federal government to allow federal authorities to examine the investment portfolio and profile of each investor. Stabilizing the situation has significant implications for Nigeria's larger energy market, particularly its exports.

Despite Nigeria having one of Africa's richest hydrocarbon reserves, massive social inequalities have produced increasing unrest. According to the U.S. Energy Information Administration, in January Nigeria had an estimated 37.2 billion barrels of proven oil reserves. However, little of the wealth generated by this has trickled down to Nigerian consumers, who face relentlessly rising bills for power because massive corruption diverts much of the country's foreign earnings.

As a consequence of the massive fiscal disparity, since December 2005 attacks against Nigeria's energy infrastructure have increased, particularly in the Niger Delta, where the Movement for the Emancipation of the Niger Delta has emerged as the main group attacking oil infrastructure, seeking to redistribute oil wealth to less privileged classes of society and greater local control of the region's energy sector.

The Nigerian Delta's rising instability has caused significant disruption, with several foreign companies in the past year declaring force majeure on oil shipments and halting exports. While the EIA estimated Nigeria's 2009 oil production capacity at around 2.9 million barrels per day, the persistent attacks have shrunk the country's exports to 1.6 million to 2 million bpd.

While indigenous pricing policies seem remote from foreign concerns, Nigeria is an important oil supplier to the United States, buying nearly 40 percent of Nigerian production, where its light, sweet low-sulfur quality crude is a preferred gasoline feedstock.

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