Nigeria’s Electricity Subsidy Not Sustainable — PowerUp Nigeria

The convener and Executive Director of PowerUp Nigeria, a Power Consumer Advocacy Group, Adetayo Adegbemle, has said that Nigeria’s electricity subsidy is unsustainable as it constitutes a huge financial burden on the federal government.

In an industry overview obtained by Vanguard, he stated: “Historically, Nigerian Government has been paying electricity subsidy to the Nigeria Electricity Supply Industry (NESI). This means that there is the Cost Reflective Tariff of supplying 1kWh (kilowatt hour), and the Allowed Tariff that consumers are “allowed” to pay.

“This variance, otherwise called “subsidy” has now turned into an elephant in the chinaware shop. The subsidy is as a result of Government policy consideration on welfarism, targeted at supporting social welfare of consumers who might not be able to pay the high true cost of the service.

“Economic stability, aimed at ensuring a stable and affordable energy supply is essential for economic development, and political that further aimed at mitigating possible social unrest and create political instability.

“The Federal Government of Nigeria, in 2020, with the introduction of Service Based Tariff (SBT) decided to phase out subsidy on electricity tariff, because of the strain it is putting on Government finances, and inefficiencies it promotes in the energy sector.

“The Minister of Finance, Budgets and National Planning under President Muhammadu Buhari, Mrs. Zainab Ahmed had said that the Federal Government had quietly removed all subsidies in the power sector with a plan to gradually end subsidies on petrol.

“This was necessitated by the fact that payment of Subsidy, both on petrol and electricity, has become an albatross on Government finances. Between 2015 and 2020, the shortfall in allowed tariff reportedly stood at about N2.4 trillion, averaging N200 billion yearly, and in 2022 alone, over N600bn has been paid in subsidies, and it has been estimated to skyrocket to at least N1trillion in 2024.”

According to him, “In 2022, NERC, the Nigeria Electricity Regulatory Commission, NERC rolled out the Multi Year Tariff Order that gradually phases out subsidy so that Nigerians can start paying Cost Reflective Tariff. For instance, inthe MYTO 2022, the Cost Reflective Tariff, on the average, should be N68.42 per kilowatt hour (kWh), while the Allowed Tariff the DisCos were to charge was N59.89/kWh.

“With this, the Federal Government provided N8.53/kWh as subsidy. Between January and March 2023 alone (Q1, 2023), the total subsidy of N52.7bn was paid to the 11 Discos’’.

December 28, 2023