Nigeria's Electricity Subsidy Bill Skyrockets 220% Despite Band A Tariff Hike, While Power Generators Resist State-Level Tariff Reductions Amidst Mounting Debts.
Nigeria's electricity subsidy has escalated by a shocking 220 percent, reaching nearly N1.94 trillion in 2024, a significant jump from N610 billion in 2023. This alarming figure comes despite the highly controversial tariff hike for Band A customers, which took effect in April 2024, ostensibly to reduce the government's subsidy burden. The Nigerian Electricity Regulatory Commission (NERC) and industry analysts attribute this surge primarily to macroeconomic pressures, particularly the floating of the naira and the removal of fuel subsidies, which have driven up inflation and the cost-reflective tariffs. This financial strain underscores the persistent challenges in achieving a sustainable and cost-reflective electricity market in Nigeria.
The NERC's annual report revealed that the Federal Government incurred the N1.94 trillion subsidy obligation to cover the shortfall between the true cost of electricity and the actual tariffs approved for consumers. While the Band A tariff review did lead to a temporary 39.99 percent drop in the quarterly subsidy burden between Q1 and Q2 2024, the overall annual figure remains astronomically high. This financial burden on the government highlights the deep-seated issues within the power sector, where insufficient revenue collection, huge outstanding debts to generation companies (GenCos), and infrastructure deficits continue to hamper efficiency and service delivery.
Further complicating the power sector's already precarious financial state, power generation companies (GenCos) are vehemently kicking against recent attempts by state regulators to reduce electricity tariffs. The Enugu State Electricity Regulatory Commission (EERC), for instance, reduced Band-A tariffs from N209/kWh to N160/kWh for Mainpower Electricity Distribution Limited. GenCos, represented by Dr. Joy Ogaji of the Association of Power Generation Companies, expressed grave concerns, noting that with debts owed to them standing at approximately N4 trillion (including N2 trillion for 2024 and N1.9 trillion in legacy debts from 2015-2024), such tariff reductions would only exacerbate their financial woes.
The GenCos argue that there is no clear government policy on electricity subsidies, leading to a monthly increase in the sector's debt levels. They queried how state regulators account for their share of accumulated sector debt and urged them to design tariffs that remove dependence on federal government subsidies. The ongoing debates between federal and state regulators, power generators, and distribution companies highlight the critical need for a holistic review of the power sector. Experts continue to stress that tariff increases alone are not a "silver bullet" and that comprehensive reforms, including improved gas supply, expanded transmission infrastructure, and enhanced operational efficiency, are essential for a stable and reliable power sector in Nigeria.
I'm Adedayo Obadina
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