Electricity subsidy will hit N2.4 trillion by year-end – NERC

• The Nigerian Electricity Regulatory Commission says electricity subsidy will hit N2.4 trillion by year-end
• The NERC said the increase is due to challenges with foreign exchange and tariff adjustments
• Minister of Power, Adebayo Adelabu, decried incessant destruction and vandalisation of electricity infrastructure

The Nigerian Electricity Regulatory Commission (NERC) says the cumulative electricity subsidy for 2024 will increase to N2.4 trillion.

The Commissioner of Planning, Research, and Strategy of the NERC, Dr Yusuf Alli, disclosed this at the PricewaterhouseCoopers’ (PwC) annual power and utilities roundtable, held in Lagos on Thursday, November 28, with the theme, ‘Reigniting Hope in Nigeria’s Electric Power Sector.’

Alli attributed the increase in the subsidy figures to challenges with foreign exchange and adjustments to tariffs.

He said, “As of November, the subsidy amount stood at N1.9 trillion, but with current trends, the monthly subsidy for electricity is expected to reach N260 billion in December.

“When the action was taken in April to increase tariff for band A, that reduced it by over N100 billion, but unfortunately, there has been some level of backsliding in the macroeconomic environment.

“So right now, the best estimate that we have for 2024 is that the cumulative subsidy for the year will be N2.4 trillion.

“The implication is that the Federal Government, Ministry of Finance, would have to find the money to pay the generating companies because they are the ones right now that are not getting their full money arising from the shortfalls.”

Electricity subsidy removal led to tariff hike

In its report for the second (Q2) of 2024, the NERC said the Federal Government’s electricity subsidy obligation stood at N380 billion, a 40 per cent decline from the N633.3 billion recorded in Q1 2024.

The Federal Government halted electricity subsidy payments for electricity feeders categorised as Band A in April 2024, with the subsidy at N140.7 billion.

As of September 2024, the monthly electricity tariff subsidy paid by the Federal Government stood at N181.63 billion, increasing from N173.88 billion in August, N163.87 billion in July and N102.30 billion in May 2024, raising concerns that another electricity tariff hike may be in the offing.

Following the subsidy removal, electricity customers in the Band A category, who make up 15 per cent of the population of electricity customers in Nigeria and consume 40 per cent of electricity at a minimum of 20 hours of electricity daily, were made to pay N225 per kilowatt hour (kWh), a 300 per cent increase from the previous N68/kWh.

Musiliu Oseni, Vice Chairman of the Nigerian Electricity Regulatory Commission (NERC), said the decision was to ensure sustainable energy distribution and reduce subsidies for the 2024 fiscal year by N1.14 trillion in line with the Federal Government’s subsidy realignment.

The tariff was later reduced to N206.80/kWh when the subsidy figure declined to N102.30 billion in May following public outcry from customers, labour unions and manufacturers.

However, when the subsidy figure increased to N158 billion in June, the tariff for Band A customers also increased by N2.70/kWh to N209.50/kWh in July.

Electricity distribution companies (DisCos) said the adjustment was necessitated by several key economic indices, including fluctuations in the exchange rate, the current inflation rate, available generation capacity and the cost of gas.

Adelabu decries vandalism of electricity infrastructure

At the event, the Minister of Power, Adebayo Adelabu, highlighted the challenges plaguing the sector and decried the destruction and vandalisation of electricity infrastructure across the country.

Adelabu, represented by his Chief Technical Adviser, said the incessant destructions lead to increased government spending, which was estimated at N8.8 billion so far in the year, and makes managing the value chain difficult.

He said, “Our successes have not been without its challenges. We have recorded frequent grid disturbances recently due to various factors, which include ageing infrastructure, resource limitations, capacity inadequacy across the value chain, and predominantly a consistent vandalism experience on the transmission network across the country.

“When you have an infrastructure that is weak and dilapidated like the transmission infrastructure we have, and in addition to that, you have a significant level of vandalism, then the expectation is going to be exactly what we’re seeing today. I mean, people would not really understand the level of vandalism that occurs.

“In the last six months, TCN has probably spent close to N10 billion on fixing towers that have been vandalised. From a capital point of view, rather than using that capital to complete existing projects or looking at extensions and expansion, they are actually using this to fix lines that are being destroyed on a daily basis.”

Nigeria loses $26bn yearly to electricity shortages –Report

Meanwhile, TheRadar reported that Nigeria suffers an estimated annual economic loss of $26 billion due to electricity shortages, according to a Standard Bank, Africa Trade Barometer report.

According to the report, businesses shore up electricity shortages by spending nearly $22 billion annually on off-grid fuel, which leads to increased operational costs.