The Federal Government’s electricity subsidy ballooned to N1.94 trillion in 2024 — a staggering 220 per cent increase from the N610 billion recorded in 2023, according to the Nigerian Electricity Regulatory Commission (NERC).
The sharp rise followed the floating of the naira, fuel subsidy removal, and rising inflation, all of which widened the gap between cost-reflective and customer tariffs.
Despite a hike in Band A electricity tariffs in April, NERC’s latest report reveals that the government only paid N371.34 million of the N1.94 trillion owed, representing just 0.019 per cent of the obligation.
The report attributes the spike to a Federal Government policy that froze electricity tariffs even as production costs rose sharply.
In the first quarter of 2024 alone, the government’s subsidy obligation stood at N633.3 billion — a 303 per cent increase from the 2023 quarterly average.
Though the Band A tariff review led to a 40 per cent drop in subsidy for Q2, a fresh government directive to freeze rates again pushed the figures higher in Q3 and Q4, ending the year at nearly N2 trillion.
The subsidy burden was highest in Abuja, Ikeja, and Ibadan DisCos, which collectively received over N790 billion.
QYola DisCo attracted the highest unit subsidy due to its higher operational costs and insecurity challenges, even though its allowed tariffs remained the same as others.
At the national level, the average cost-reflective tariff in 2024 was N175.31/kWh, while the average allowed tariff was pegged at N100.27/kWh — leaving a subsidy gap of N75.04 per kilowatt-hour.
To manage this, the government replaced the Minimum Remittance Obligation framework with the DisCo Remittance Obligation system, mandating DisCos to pay only what their allowed tariffs could cover.
NERC noted that failure to meet subsidy obligations has deepened the financial crisis across the power sector value chain, with generation companies now owed nearly N5 trillion.
Power Minister Adebayo Adelabu recently admitted that the government cannot sustain current subsidy levels, hinting at the need for cost-reflective pricing.
Power sector expert Bode Fadipe blamed the subsidy surge on naira depreciation, noting that most power equipment and gas feedstock are dollar-denominated.
He warned that without a structural overhaul, Nigeria’s power sector might remain stagnant for the next 20 to 30 years.
He also cautioned that full subsidy removal could worsen electricity theft if not managed properly.
Meanwhile, Dangote Group President, Aliko Dangote, urged Nigerian investors to channel funds into the power sector, stating that Nigeria has the potential to generate up to 60,000 megawatts.
He said his group currently generates 1,500MW internally and believes the country should aim far higher than its current 5,000MW national output.