The Minister of Power, Adebayo Adelabu, has said that the country can no longer afford to subsidise electricity for its citizens, as the government already owes N1.3 trillion to the power generation companies (GenCos). This statement comes at a time when Nigerians are facing a severe cost-of-living crisis, with high inflation, unemployment, and poverty rates.
According to the minister, the current electricity tariff is not cost-reflective, meaning that the consumers are paying less than the actual cost of producing and distributing electricity. This creates a huge gap between the revenue collected by the distribution companies (DisCos) and the amount they have to pay to the GenCos and other market participants. To fill this gap, the government has been providing subsidies to the power sector, which have accumulated to N1.3 trillion as of December 2023.
However, the minister said that this subsidy regime is unsustainable, as it drains the public resources that could be used for other developmental purposes. He also said that the subsidy discourages private investment in the power sector, as it creates uncertainty and distortion in the market. He added that the subsidy does not benefit the poor, as most of them are not connected to the grid or have access to reliable electricity supply.
The minister’s position is in line with the recommendation of the International Monetary Fund (IMF), which has urged the Federal Government to completely phase out electricity subsidy in the country as a way of restoring macroeconomic stability. The IMF said that the subsidy is inefficient, costly, and regressive, and that it should be replaced by targeted social assistance programs for the vulnerable segments of the population.
The Nigerian Electricity Regulatory Commission (NERC) has also introduced a new electricity cost-reflective tariff plan, which has been effective since January 1, 2024. The new tariff reflects the actual cost of electricity production and distribution, and varies across different customer categories and regions. The NERC said that the new tariff will ensure the financial viability of the power sector, and attract more investment and efficiency.
However, the NERC also said that the government has decided to continue subsidizing electricity for some customers, based on its policy direction. The NERC said that the government will pay N1.6 trillion as electricity subsidy in 2024, which is equivalent to 1.2 percent of the country’s GDP 4. The NERC said that the subsidy will be gradually reduced over time, until it is completely eliminated.
The electricity subsidy issue is one of the most contentious and complex challenges facing Nigeria’s power sector reform. While the subsidy may seem to provide some relief to the consumers, especially the low-income earners, it also has negative consequences for the economy, the environment, and the quality of service delivery.
Therefore, the government needs to find a balance between protecting the interests of the consumers and ensuring the sustainability and growth of the power sector. This will require a comprehensive and holistic approach, involving policy, regulatory, institutional, and social measures.
