PCAF to tackle liquidity challenges in power sector

•To be activated by Q1 2025, promises stable cash flow, transparency for DisCos

Power Consumer Assistance Fund (PCAF), established under the Electricity Act of 2023, has been unveiled as a strategic solution to address liquidity challenges in the Nigerian Electricity Supply Industry (NESI).

The fund is designed to provide targeted financial relief to electricity consumers while enabling Distribution Companies (DisCos) to charge cost-reflective tariffs.

This was announced in an article obtained by The Guardian. The challenges in NESI have escalated over time, largely due to the implementation of a frozen end-user tariff policy in December 2022. This policy resulted in a substantial disparity between cost-reflective tariffs and consumer rates, causing a monthly subsidy burden of N262 billion.

In April 2024, the Nigerian Electricity Regulatory Commission (NERC) implemented a temporary measure to unfreeze tariffs for Band A customers, who are assured of 20 hours of electricity daily. This intervention offered some relief by increasing market payments to 49.5 per cent and lowering the monthly subsidy burden to N153 billion.

By the close of 2024, market payments are expected to decrease, while subsidies are projected to rise to N200 billion, highlighting the pressing need for sustainable solutions.

NERC will oversee the fund’s implementation, with contributions drawn from the government and eligible customers. The initiative aims to ensure transparency and equitable distribution of benefits across the electricity sector.

Under PCAF, all electricity consumers will initially receive financial support to cushion the effects of macroeconomic volatility. Over time, the focus will shift to underprivileged customers, in line with Section 122(4) of the Electricity Act.

The fund guarantees a minimum monthly subsidy of N5,000 per customer, covering up to 25 kWh of electricity. Low-income consumers using less than this threshold will benefit from a full subsidy, ensuring affordability and promoting efficient energy use.

The fund will be financed through contributions from the government and eligible customers, with rates and durations determined by the Nigerian Electricity Regulatory Commission (NERC).

“NERC must work closely with DisCos, consumer advocacy groups and policymakers to ensure seamless implementation. Real-time monitoring and IT systems will be deployed to track service quality and compliance. Tariff revisions will reflect macroeconomic conditions, ensuring consumers are not overburdened,” it stated.

To be launched in the first quarter of 2025, PCAF is expected to stabiliseDisCos’ cash flow by enabling cost-reflective tariffs while fostering transparency and accountability in the sector.