Recall the Central Bank of Nigeria (CBN) recently announced the unification of all segments of the forex exchange (FX) market thus collapsing all FX windows into the Investors & Exporters (I&E) window.
The decision to effect these changes in Nigeria’s FX market reveals the FG’s plans to ease the control of the naira, a move which will see the local currency float freely.
The positive that comes with this move is that market forces, such as supply and demand, will automatically play a significant role in determining the exchange rate.
According to a report by Nairametrics, the decision to unify the naira will affect the price of electricity tariffs across the country.
Speaking on the issue, an industry stakeholder, Dr Damilola Oluwole, a Director of Energy Markets and Rates Consultants said the rate of inflation was taken into account before the current electricity tariffs were designed.
He further explained that the expected rise in tariffs is “based on historical average rates from the National Bureau of Statistics (NBS).” His position was also confirmed by Odion Omonfoman, the CEO of New Hampshire Capital, an electricity consulting company.
According to Omonfoman, two key factors determine the adjustments of end-user tariffs which are the inflation rate and foreign exchange rates.
Currently, the inflation figure stands at approximately 22.4% and with the increasing Consumer Price Index, (CPI) the impact on electricity tariffs is also expected to be marginal.
The calculation of electricity tariffs is currently based on the average CBN-based foreign exchange (FX) rate from the past six months, with an added 1% premium.
With this deduction, the Nairametrics report further stated that there may be a slight 6 months delay in effecting the rate guidance based on the I&E window until the bi-annual tariff reviews in December 2023.
This is to ensure the I&E window rates would have been in effect for 6 months.
Accordingly, the unification has rendered the fixed exchange rate used in the Multi-Year Tariff Order in 2022 (MYTO 2022) invalid due to the fluctuation of exchange rates.