THE Federal Government may spend N2.36tn on electricity subsidies for low-income consumers in 2025, a figure that comes amid plans to implement a cost-reflective tariff for electricity consumers.
This came as the Multi-Year Tariff Order released by the Nigerian Electricity Regulatory Commission on Sunday showed that the government incurred N178.03bn electricity subsidy in January despite minimal cash backing.
This subsidy payment comes despite low allocations in the budget to cover the mounting electricity costs. The N178.03bn is a decrease of 10.1 per cent or N19.88bn when compared to the N197.91bn that was shouldered by the government on behalf of electricity consumers in the previous month.
The regulatory commission stated that the subsidy was calculated after a review of key tariff indices which showed that the weighted average cost-reflective tariff dropped to N116.75 per kilowatts from N213.85 per kilowatts in December 2024.
NERC explained that the exchange rate was pegged at N1,556 to the dollar, an increase in inflation to 34.60 per cent, and changes in available generation capacity and cost necessitated the minor review.
On wholesale gas-to-power prices, “The review maintains the benchmark gas-to-power price of $2.42/MMBTU based on the established benchmark price of gas-to-power by the Nigerian Midstream and Downstream Petroleum Regulatory Authority.”
The commission maintained that the “approved tariffs shall remain in force subject to monthly adjustment of pass-through indices including inflation rate, NGN/dollar exchange rate and gas-to-power prices.”
While the reduction in the January subsidy cost might seem like a positive development, it highlights the larger issue of the financial sustainability of Nigeria’s power sector.
As of now, the government continues to bear the lion’s share of electricity subsidies, with plans to phase out these subsidies through tariff adjustments to reflect the true cost of power generation, transmission, and distribution.
The January 2025 subsidy breakdown indicates varying subsidy costs across the country’s distribution companies.
Consumers under the Abuja Distribution Company emerged as the largest beneficiary of the subsidy, receiving N28.38bn. This was closely followed by Ikeja Disco, which was allocated N27.2bn. Consumers under the Eko Distribution Company (Eko Disco) benefited from a N22.88bn subsidy.
Other regional Discos received significant amounts as well, with the Kaduna Disco receiving N14.13bn, Jos Disco N11.84bn, and the Enugu Disco N15.38bn. The Benin Disco was allocated N15.75bn, while the Yobe Disco was allocated N7.77bn. Meanwhile, the Port Harcourt Disco received N14.59bn, and Ibadan Disco was allocated a substantial N24.03bn.
Meanwhile, a document sighted by our correspondent on Monday showed that last year, only N450bn was cash-backed out of the incurred subsidy cost of N2.37tn in 2024, leaving an outstanding of N1.92tn.
“Total subsidy in 2024 stood at N2.37tn. Without the tariff review approved by Mr President on April 24, the subsidy would have risen to N3.2tn, 11.64 per cent of the 2024 total federal budget. Less than N450bn has been cash-backed from the N2.37tn tariff shortfall in 2024. Thus, N1.92tn is still outstanding.”
The government also disclosed a projected tariff shortfall of N2.36tn for 2025.
“At the currently allowed tariffs, the market faces a projected tariff shortfall of N2.36tn for 2025 with no anticipated funding for 2025 tariff shortfall,” the document added.
The Federal Government has been attempting to move toward a more market-driven power sector by introducing cost-reflective tariffs, which would allow electricity prices to better match the true cost of production and distribution.
At the recent two-day energy compact summit in Tanzania, the government announced plans to introduce an annual electricity subsidy of $600m for all customers from 2025 as part of efforts to reform the power sector.
The subsidy, expected to last until 2027, aims to bridge the gap between cost-reflective tariffs and regulated electricity rates, while the government works towards eliminating the metering deficit and enhancing the financial sustainability of power distribution companies.
The document presented to potential investors noted that the subsidy might take different forms, including a flat monthly subsidy per electricity consumer or a subsidy on the first 50 kilowatt-hours consumed each month.
This approach intends to reduce the regressivity of previous subsidies, where a significant portion benefited wealthier households.