June 18, 2024
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Nigeria’s Electricty Commission, Experts Doubt Sustainability of Electricity Subsidies

The Nigerian Electricity Regulatory Commission (NERC), operators and experts in the sector said the subsidies for electricity are unsustainable, as the government spent N3.348 trillion in the past nine years

Figures obtained from the NERC revealed that the government spent the amount between 2015 and 2023.

The report, according to The Punch showed that in 2015, 2016, 2017, and 2018, the government spent N225bn, N308bn, N351bn, and N440bn as subsidies for electricity respectively.

It went ahead to spend N528bn, N501bn, N251bn, and N144bn in 2019, 2020, 2021, and 2022, while an estimated N600bn was spent in 2023.

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The summation of these funds showed that about N3.348tn was spent on subsidies during the one year by the Federal Government.

The NERC, however, stated in its report that as a result of tariff reforms, the annual tariff shortfall (subsidy) was reduced from N528bn in 2019 to N155bn in 2022.

Providing some key takeaways from the tariff reforms, the commission said, “Between January 2020 and January 2023, tariff increased from 55 per cent of cost recovery to 94 per cent.

“Without the tariff reviews that commenced in 2019, subsidies payable by the government would have grown to about N1tn per annum by 2023. Service-Based Tariff was instrumental in the transition to cost-reflective levels.

“Unification of forex and current inflationary pressures in 2023 has pushed cost-reflective tariffs to N124/kWh. Imperatives for policy support to review end-user tariffs to minimise the fiscal burden. Proposing to implement automatic monthly tariff adjustments to manage volatilities in FOREX and inflation rates.”

The power sector regulator noted that the “financial burden of tariff subsidies between 2015 and 2022 stood at NGN2.8tn, while estimated subsidy for 2023 is circa N600bn+.”

Reacting to the development, the President of Nigeria Consumer Protection Network, who served in the National Technical Investigative Panel on Power System Collapses/System Stability and Reliability (June 2013), Kunle Olubiyo, faulted the subsidy methodology.

He said, “The tariff templates/tariff methodology are faulty. The indices/indicators are padded costs and require an urgent review. The Federal Government should not be reduced to a cash cow and conduit pipe.

“The subsidies regime in the power sector should be properly interrogated to avoid Nigeria sliding into the same pattern of subsidies that was tied around the neck of the Federal Government in the oil and gas sector.

“Subsidies in the oil and gas sector/ energy industry, and this case the electricity sector value chain are figments of the imagination of the proponents of such imaginary subsidies.”

Olubiyo argued that subsidies in Nigeria had never benefited the poor masses or targeted end users.

On his part, the Convener and Executive Director, PowerUpNigeria, Adetayo Adegbemle, a power consumer advocacy group, pointed out that the electricity subsidy was not sustainable.

“Historically, the Nigerian government has been paying electricity subsidies to the Nigeria Electricity Supply Industry. This means that there is the cost-reflective tariff of supplying 1kWh (kilowatt hour), and the allowed tariff that consumers are ‘allowed’ to pay.

He said, “This variance, otherwise called ‘subsidy’ has now turned into an elephant in the chinaware shop.”

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