The Federal Government’s electricity subsidy spending has risen to ₦1.91tn in the first 11 months of 2024, according to the Nigerian Electricity Regulatory Commission.
Power distribution companies collected ₦1.23tn in revenue in the first nine months, surpassing 2023’s total of ₦1.08tn.
Despite the removal of subsidies for Band A customers, analysis of the NERC’s data shows quarterly increases in electricity subsidy obligations throughout the year.
The amount incurred between January and November 2024, represents an increase of 204.15 per cent or N1.283tn from N628.61bn recorded in 2023.
A breakdown showed that N633.30bn was incurred as electricity subsidy in the first three months of 2024. It however reduced to N380bn in the second quarter.
In the third quarter (July to September), electricity subsidy costs surged by 36.46% to ₦518.55bn. For October and November, the subsidy costs totaled ₦380.06bn, despite multiple incidents of national grid collapses.
Recall, On April 3, the NERC cut off subsidy payments for areas categorized as Band A to reduce subsidy obligations. As a result, electricity tariffs in Band A increased from ₦68 to over ₦200 per kilowatt-hour.
The lack of cost-reflective tariffs led the Federal Government to cover the gap between the allowed and actual tariff through subsidies.
The Minister of Power, Chief Adebayo Adelabu, announced that the government would subsidize the power sector with ₦2.9tn in 2024, despite not increasing electricity tariffs.
The DRO, it was learnt, represents the total Genco invoice that is billed to the Discos by NBET based on what the allowed Disco tariffs can cover.
The transmission and administrative service costs payable by Discos to the Market Operator, an arm of the Transmission Company of Nigeria, are recovered 100 per cent.
But, the cost of power generation is a crucial factor in ensuring electricity generation and supply nationwide. In November, a total of ₦67.095bn was incurred as generation costs, but Distribution Companies were allowed to recover only ₦39.24bn.
However, the initial removal led to a reduction in subsidy costs and revenue to distribution companies to charge cost-reflective tariffs.
An increase in the cost of generating energy means the government has had to incur more costs in recent months.
Generation costs have risen significantly, from ₦63.8 per kilowatt-hour in January 2024 to ₦117.27 per kilowatt-hour in November.
The document read, “The Federal Government policy on subsidy and electricity tariff provides for a gradual transition to cost-reflective end-user tariffs with safeguards for the less privileged electricity consumers. Accordingly, the government has committed to funding the revenue gap arising from the difference between cost-reflective tariffs approved by the commission and the actual end-user tariff during the transition to cost-reflective tariffs where applicable.”
Last month, the Executive Director of Research and Advocacy of the Association of Nigerian Electricity Distributors, Sunday Oduntan, said the government has not been fulfilling its promise to pay the cost of subsidising the electricity consumed by customers on Band B to E.
According to Oduntan, only customers in Band A pay the full cost of electricity consumed, while the government subsidizes approximately 67% of the electricity costs for other customers.
However, Oduntan stated that while the government promised to cover the shortfalls, it has continued to default on these payments.
Today, only people 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, which means you are not even paying up to half of what you should be paying, and the so-called subsidy is not being paid by the government. It is now a kind of shortfall because it continues to pile up,” Oduntan said.
