- Subsidy Obligations Increase by 204% Amid Tariff Adjustments and Rising Generation Costs
- Distribution Companies Exceed Revenue Targets, Collect N1.23tn in Nine Months of 2024
The Nigerian Federal Government has incurred a staggering N1.91 trillion in electricity subsidy obligations over the first 11 months of 2024, according to a new report by the Nigerian Electricity Regulatory Commission (NERC). This represents a dramatic 204.15% increase compared to the N628.61 billion spent in 2023.
The report also highlighted that power distribution companies (Discos) collected N1.23 trillion in revenue during the first nine months of 2024, surpassing the N1.08 trillion recorded in the previous year. This surge in revenue reflects the ongoing trend of increased electricity tariff costs despite the government’s attempts to phase out subsidies for higher-paying customers, also known as Band A.
Subsidy Breakdown and Impact
The subsidy expenditure varied throughout the year. N633.3 billion was spent in the first quarter of 2024, with a subsequent decrease to N380 billion in the second quarter. However, the third quarter saw a rise to N518.55 billion, an increase of 36.46% compared to the previous quarter. For the months of October and November, subsidy costs remained high at N380.06 billion, despite repeated incidents of national grid collapse.
The NERC had attempted to reduce these obligations by eliminating subsidies for Band A customers in April 2024, which led to a significant tariff hike for those consumers, raising rates from N68 to N200 per kilowatt-hour. However, this has not been enough to fully eliminate the subsidy burden, as the cost-reflective tariffs have failed to close the gap between what consumers pay and the actual generation cost.
Government’s Commitment and Industry Response
The Nigerian government has committed to a N2.9 trillion subsidy allocation for 2024, aiming to reduce the impact on consumers while transitioning to cost-reflective tariffs. The Minister of Power, Chief Adebayo Adelabu, emphasized that the subsidies would cover the gap between the actual cost of electricity generation and what consumers pay, with the government continuing to fund these shortfalls.
Despite these commitments, Sunday Oduntan, the Executive Director of Research and Advocacy for the Association of Nigerian Electricity Distributors, criticized the government’s failure to honor its subsidy payments to Bands B to E customers. He stated that while consumers in Band A pay the true cost of electricity, the government is still subsidizing about 67% of the electricity bills for other consumer bands.
Discos’ Financial Performance
In terms of revenue generation, Discos have seen a notable increase in earnings. Between January and September 2024, they billed N1.548 trillion but successfully collected N1.23 trillion, achieving a 79.34% collection efficiency. Monthly revenues saw a steady rise, with N225.8 billion billed and N171.58 billion collected in September, continuing the upward trend observed in earlier months.
Discos have already surpassed their revenue collections from previous years, and by the end of 2024, they are on track to break records for 2021, 2022, and 2023. This reflects the growing demand for electricity and the impact of rising tariffs, although it remains to be seen whether the government can sustain its subsidy commitments while addressing industry challenges.
