Amid Tariff Hike, Electricity Subsidy Hits N1.477trn In 9 Months

Nigeria’s electricity subsidy surged to N1.477 trillion in the first nine months of 2024, reflecting a significant increase amid ongoing economic challenges.

The third-quarter 2024 report by the Nigerian Electricity Regulatory Commission (NERC) revealed that the federal government incurred an electricity subsidy of N518.55 billion in Q3 2024, representing an N84.06 billion increase from the N380.06 billion recorded in Q2, despite a tariff increase for Band A customers in April 2024.

In the third quarter, covering July, August, and September, the subsidy surged by 36.46 per cent to N464.12 billion. When combined with the N633 billion subsidy incurred in the first half, the total subsidy for the first nine months amounted to N1.477 trillion.

This figure represents a staggering 204.15 per cent increase compared to the N628.61 billion incurred as an electricity subsidy in 2023, highlighting the persistent rise in subsidy costs despite tariff adjustments for Band A customers.

The rise in subsidy costs has been attributed to the naira’s depreciation, which has increased the cost of inputs for operators, the absence of cost-reflective tariffs across all bands, and the federal government’s policy to freeze tariffs paid by customers despite escalating cost-reflective tariffs.

This has compelled the government to bridge the gap between actual costs and allowed tariffs.

In Q1 2024, the subsidy reached N633.30 billion, decreased to N380 billion in Q2, and then climbed again to N464.12 billion in Q3. Figures from NERC indicated that power subsidies in the first, second, third, and fourth quarters of 2023 were N36.02 billion, N135.23 billion, N204.6 billion, and N252.76 billion, respectively.

Rising generation costs and a volatile foreign exchange market have compounded the surge in subsidy costs. The dollar exchange rate rose from N1,494.1 in July to N1,601.5 in September, further straining the electricity sector’s financial viability.

The Minister of Power, Adebayo Adelabu, stated that the government would subsidise the power sector with N2.9 trillion throughout 2024 without increasing electricity tariffs.

The absence of cost-reflective tariffs has forced the federal government to undertake tariff subsidies to bridge the gap between cost-reflective and allowed tariffs.

For administrative ease, the subsidy is applied only to the generation costs payable by DisCos to NBET, sourced through the DisCos’ Remittance Obligation (DRO). The DRO represents the total GenCo invoice billed to the DisCos by NBET based on what the allowed DisCo tariffs can cover.

Transmission and administrative service costs payable by DisCos to the Market Operator, an arm of the Transmission Company of Nigeria, have been recovered 100 per cent.

To stabilise the power sector, the government removed subsidies for Band A customers—those receiving a minimum of 20 hours of electricity daily—raising their tariffs significantly from N68 to over N200 per kilowatt-hour. This decision triggered widespread protests from consumers and labour unions, who faced tripled electricity bills following the subsidy removal.

Despite these challenges, power distribution companies (DisCos) collected N1.23 trillion in revenue during the first nine months of 2024, surpassing last year’s total revenue of N1.08 trillion.

However, many DisCos remain dissatisfied with the non-cost-reflective tariffs and have called for broader subsidy removals across all customer bands to ensure financial sustainability.

The Executive Director of Research and Advocacy at the Association of Nigerian Electricity Distributors, Sunday Oduntan, noted that the government had failed to fulfil its promise to cover the cost of subsidising electricity for customers in Bands B to E.

“Today, only customers in Band A pay the true cost of electricity. If you are in Band B, C, D, or E, the government is subsidising your electricity consumption by as much as 67 per cent, meaning you are not paying even half of what you should. The so-called subsidy is not being paid by the government but is now a kind of shortfall that continues to accumulate,” Oduntan said.

In the latest NERC quarterly report (Q2–Q3 2024), the federal government’s subsidy obligation increased by N84.06 billion, from N380.06 billion.

“The rise in the federal government’s subsidy obligation stems from its policy to freeze allowed tariffs paid by customers despite increases in cost-reflective tariffs,” the report noted.

Yusuf Ali, NERC’s Commissioner for Planning, Research, and Strategy, during a presentation at PwC’s Annual Power and Utilities Roundtable in Lagos, highlighted that without tariff reforms implemented between 2020 and 2023, the subsidies would have escalated even further, particularly amid macroeconomic challenges over the past 20 months.

Ali explained that between 2023 and 2024, the depreciation of the local currency and other macroeconomic factors caused cost-reflective tariffs to rise by 118 per cent, while subsidies increased by 270 per cent.

Although the April tariff hike for Band A was aimed at reducing government subsidy obligations, the country’s difficult macroeconomic conditions have undermined this effort.

Ali projected that the total subsidy for 2024 would reach N2.4 trillion, with the December 2024 subsidy estimated at approximately N260 billion, up from N202 billion in the previous month.

He also highlighted a significant improvement in monthly revenue collections within the electricity sector, which grew from N31 billion in July 2017 to N160 billion in July 2024, representing a 416 per cent increase. This was driven by initiatives such as the Minimum Remittance Order/Discipline and Compliance Regime (MRO/DCR), which compelled DisCos to remit more collections to the market.

The permitted cost-reflective tariff for DisCos rose from N60/kWh in January 2020 to N123/kWh in April 2024, enabling DisCos to collect sufficient revenue to cover operational costs.

NERC’s Q3 report revealed that the total DisCos’ remittance to the Nigerian Bulk Electricity Trading Plc (NBET) stood at N324.83 billion, representing an 84.66 per cent remittance performance, an improvement from Q2’s 79.09 per cent.

NERC data showed Eko DisCo achieved a 100 per cent remittance performance, while Ikeja and Yola DisCos recorded 94 per cent and 95 per cent, respectively. Conversely, Kaduna and Kano DisCos lagged with remittance rates of 30.23 per cent and 66.73 per cent.

Notably, seven DisCos improved their remittance performance in Q3, while Yola, Port Harcourt, Kano, and Jos recorded declines.

DisCos also faced revenue collection shortfalls. The total revenue collected by all DisCos in Q3 was N466.69 billion out of N626.02 billion billed to customers.

The total energy received by all DisCos was 7,606.84GWh, while energy billed to end-use customers was 6,249.21GWh, translating into an overall billing efficiency of 82.15 per cent.

Eko DisCo collected the highest revenue (N87.02 billion) in the period, followed by Ikeja DisCo with N83.55 billion. Yola DisCo collected the least revenue at N5.41 billion.

Other DisCos’ revenue figures included Abuja (N78.28 billion), Ibadan (N57.60 billion), Benin (N41.09 billion), Enugu (N36.07 billion), and Port Harcourt (N29.22 billion). Kano DisCo collected N20.64 billion, Jos DisCo N16.37 billion, and Kaduna DisCo N11.40 billion.