In a recent industry overview obtained by Golden Page Magazine, Adetayo Adegbemle, the convener and Executive Director of PowerUp Nigeria, a Power Consumer Advocacy Group, has raised concerns about the sustainability of Nigeria’s electricity subsidy. Adegbemle emphasized that the subsidy places a substantial financial burden on the Federal Government, making it an unsustainable practice.
Historically, the Nigerian government has been providing electricity subsidies to the Nigerian Electricity Supply Industry (NESI). This subsidy, aimed at supporting social welfare and ensuring a stable and affordable energy supply, has become a significant challenge. Adetayo Adegbemle pointed out that the subsidy, originally conceived as a measure for welfarism, has now become an “elephant in the chinaware shop.”
The Federal Government of Nigeria took steps to address this issue in 2020 with the introduction of the Service Based Tariff (SBT), signaling its intent to phase out electricity tariff subsidies gradually. Mrs. Zainab Ahmed, the Minister of Finance, Budgets, and National Planning, stated that the removal of subsidies in the power sector was necessary due to the strain it imposed on government finances.
Between 2015 and 2020, the shortfall in allowed tariffs reportedly reached about N2.4 trillion, averaging N200 billion yearly. In 2022 alone, over N600 billion was paid in subsidies, and projections indicate it could soar to at least N1 trillion in 2024. Adegbemle highlighted that the subsidy removal is part of the government’s broader strategy to enhance economic stability and reduce inefficiencies in the energy sector.
To gradually phase out the subsidy, the Nigeria Electricity Regulatory Commission (NERC) introduced the Multi Year Tariff Order (MYTO) in 2022. The MYTO 2022 aimed to transition Nigerians toward paying the Cost Reflective Tariff. For instance, the Cost Reflective Tariff was set at an average of N68.42 per kilowatt hour (kWh), while the Allowed Tariff that Distribution Companies (DisCos) were permitted to charge stood at N59.89/kWh.
In the first quarter of 2023 (Q1, 2023) alone, a total subsidy of N52.7 billion was disbursed to the 11 Distribution Companies (Discos). This move reflects the government’s commitment to gradually reducing subsidies and promoting a more sustainable and economically viable electricity pricing structure.
As Nigeria navigates this transition, stakeholders are closely monitoring the impact on consumers, economic development, and the overall stability of the energy sector.
