The Federal Government’s electricity subsidy spending surged to a staggering N1.94 trillion in 2024, representing a 220% jump from the N610 billion spent in 2023, according to the latest data from the Nigerian Electricity Regulatory Commission (NERC). The sharp rise has sparked renewed concerns about the sustainability of Nigeria’s power sector financing, given the government’s inability to settle its subsidy obligations.
Analysts link the dramatic rise in subsidy obligations to two key factors: the floating of the naira in June 2024 by President Bola Tinubu and the government’s decision to freeze customer tariffs despite rising cost-reflective tariffs.
The NERC 2024 annual report revealed that the Federal Government incurred an average monthly subsidy obligation of N161.85 billion due to the gap between cost-reflective tariffs and the approved tariffs for electricity consumers. Although the tariff for Band A customers—who consume about 40% of the nation’s total electricity—was reviewed in April 2024, reducing the subsidy burden by nearly 40% in Q2, the government’s decision to maintain July tariff rates for the rest of the year pushed the total subsidy obligation back up in Q3 and Q4.
The report noted that Yola DisCo had the highest cost-reflective tariff at N266.64/kWh, largely due to insecurity and vandalism in the North-East. Conversely, Ikeja and Eko DisCos recorded lower cost-reflective tariffs, which translated into reduced subsidy allocations per unit.
Despite the huge subsidy obligations, the government has paid only N371.34 million out of the N1.94 trillion, representing a mere 0.019% of the total debt owed to power generation companies (GenCos).
According to the Nigerian Bulk Electricity Trading Plc (NBET), the unpaid subsidies have worsened the liquidity crisis in the power sector, with GenCos now owed close to N5 trillion. Industry experts fear that this financing gap could grow to over N6 trillion if unpaid subsidies continue to accumulate.
The introduction of the DisCo Remittance Obligation (DRO) framework in January 2024 was meant to prevent subsidy debts from distorting the balance sheets of distribution companies (DisCos). Under this framework, DisCos are required to remit 100% of their allowed tariffs to NBET, while the Federal Government covers the shortfall through direct subsidy payments. However, the failure to meet these obligations has left GenCos struggling to maintain operations.
Speaking on the issue, power sector expert Bode Fadipe attributed the high subsidy figures to the steep depreciation of the naira, as most power sector components, including gas feedstock and transformers, are imported and priced in dollars.
Fadipe also expressed concerns over the government’s inability to fund the power sector adequately, predicting that the sector might remain in crisis for the next 20 to 30 years if no structural reforms are implemented.
“When you freeze tariffs while inflation and exchange rates rise, the subsidy burden becomes unsustainable,” he said. “The government owes GenCos trillions, and unless something drastic is done, the sector may not see salvation soon.”
On whether Nigeria should fully remove electricity subsidies, Fadipe warned that doing so could trigger widespread energy theft. “Complete subsidy removal will make power unaffordable for millions, and many will resort to illegal connections. We need a holistic power sector review, not just tariff hikes,” he added.
Meanwhile, Africa’s richest man, Alhaji Aliko Dangote, has urged wealthy Nigerians to invest in the power sector rather than taking their capital abroad.
Speaking on the sidelines of an industry event, Dangote argued that Nigeria has the potential to generate up to 60,000 megawatts of electricity if more private investments are channeled into the sector.
“As a group, we already generate 1,500 megawatts for our own operations. Nigeria should be doing at least 50,000 to 60,000 MW. The sector is privatized; we need to invest in our own country,” he said.
With the government unable to sustain the subsidy burden, experts anticipate a major cost-reflective tariff adjustment in 2025. Minister of Power Adebayo Adelabu has repeatedly hinted at a shift towards a market-driven tariff regime, warning Nigerians to “brace up for a cost-reflective tariff” to ensure liquidity in the sector.
However, concerns remain over how such a move might affect households already grappling with high inflation and the rising cost of living.