By Ologeh Joseph Chibu
Even with erratic power supply, the Federal Government continues to pay huge funds to subsidise the electricity sector.
The central government said its has spent ₦1.91 trillion on electricity subsidies between January and November 2024.
A new report by the Nigerian Electricity Regulatory Commission (NERC) said the FG has continued to pay heavily for subsidy.
Despite efforts to reduce subsidy obligations, the subsidy costs have surged by 204.15% compared to ₦628.61 billion recorded in 2023.
Rising Subsidy Costs Amid Increased Electricity Generation Expenses
The report reveals that the cost of electricity subsidies has grown significantly throughout the year. While ₦633.30 billion was incurred in Q1 2024, the figure dropped to ₦380 billion in Q2, only to rise again to ₦518.55 billion in Q3. October and November alone saw an additional ₦380.06 billion, despite challenges such as national grid collapses.
The increase in subsidies is partly driven by the rising cost of electricity generation, which has nearly doubled from ₦63.8/kWh in January to ₦117.27/kWh in November. The Federal Government has been covering the gap between cost-reflective tariffs and the actual tariffs paid by consumers, especially those in Bands B to E, who are subsidized by as much as 67%.
Efforts to Reduce Subsidy Obligations
In April 2024, NERC eliminated subsidy payments for Band A customers, raising their tariff from ₦68 to over ₦200 per kWh. However, this policy has had limited impact on the overall subsidy burden. The Minister of Power, Chief Adebayo Adelabu, previously announced that the government would spend ₦2.9 trillion on electricity subsidies in 2024 if tariffs were not increased further.
Despite these measures, stakeholders have criticized the government for failing to fulfill its commitments to cover shortfalls, leaving electricity distribution companies (Discos) to bear the financial burden.
Discos Achieve Record Revenue Collection
Electricity distribution companies reported revenue of ₦1.23 trillion in the first nine months of 2024, surpassing the ₦1.08 trillion collected in 2023. This represents 79.34% revenue collection efficiency, with monthly revenue collections steadily increasing.
For example, Discos collected ₦95 billion out of ₦130.92 billion billed in January and ₦171.58 billion out of ₦225.80 billion billed in September. The upward trajectory has already eclipsed revenues collected in prior years, with the industry poised to break all-time records by year-end.
Persistent Challenges in the Power Sector
Despite improved revenue collection by Discos, the sector faces ongoing challenges, including the absence of cost-reflective tariffs and a reliance on government subsidies to bridge the financial gap. The subsidy policy, which aims to protect vulnerable consumers, is under scrutiny as stakeholders push for a sustainable solution to Nigeria’s power crisis.
The NERC report highlights the need for gradual reforms to achieve cost-reflective tariffs while addressing the concerns of less privileged electricity consumers.
