The Nigerian Electricity Regulatory Commission (NERC) said the government sustained a subsidy obligation of N135.23 billion on electricity in the second quarter of 2023.
In its quarterly report released on Monday, NERC disclosed that in the absence of cost-reflective tariffs, the government undertakes to cover the resultant gap (between the cost-reflective and allowed tariff) in the form of tariff shortfall funding.
It explained that this funding is applied to the Nigerian Bulk Electricity Trading (NBET) invoices that are to be paid by DisCos, adding that the amount to be covered by the DisCos is based on the allowed tariff determined by the commission and set out as their Minimum Remittance Obligation (MRO) in the periodic Tariff Orders issued by the Commission.
“It is important to note that due to the absence of cost-reflective tariffs across all DisCos, the government incurred a subsidy obligation of N135.23 billion in 2023/Q2, which is an increase of N99.21 billion (+275 per cent) compared to the N36.02 billion incurred in 2023/Q1,” the commission said.
It noted that this increase is largely attributable to the government’s policy to harmonise rates.
Premium Times reports that on average, the report said the subsidy obligation incurred by the government per month was N45.08 billion in Q2 2023.
“For ease of administration of the subsidy, the MRO is limited to NBET only with the MO being allowed to recover 100 per cent of its revenue requirement from the DisCos,” it said.
The report noted that in 2023/Q2, the MRO-adjusted invoice from NBET to the DisCos was N154.04 billion while the total remittance made was N152.48 billion, which translates to a 98.99 per cent remittance performance.
It added that the remittance performance of DisCos to NBET in 2023/Q2 (98.99 per cent) is a 31.37pp increase compared to the 67.62 per cent remittance performance recorded in 2023/Q1.
“The significant improvement in remittance performance by DisCos is because a large portion of the NBET invoice is to be covered by the government in the form of subsidies.
“The sharp rise in the government’s subsidy obligation meant that in 2023/Q2, DisCos were only expected to cover 53.25 per cent of the total invoice received from NBET,” the report said.
In 2023/Q2, the report said seven DisCos recorded >100 per cent remittance performance to NBET.
“These DisCos include Ikeja (115.21 per cent), Ibadan (112.86 per cent), Benin (111.32 per cent), Eko (111.20 per ), Enugu (108.52 per cent), Jos (108.48 per cent) and Yola (102.44 per cent).
“All the DisCos had improved remittance to NBET when compared to 2023/Q1 which can be explained based on the exchange-rate harmonisation induced increase in government subsidy,” it said.
To sustain power sector operations, the commission said it recognises the significance of enhancing market remittances and is providing DisCos with revenue-boosting initiatives.
“The introduction of the SBT and opportunities for DisCos to improve customer service through better energy supply quality is a clear path to increased revenue without broad-based tariff increases.
“The ongoing DisCos investments in infrastructure and metering initiatives will result in a greater volume of reliable energy supplied to customers, improved revenue assurance, collections, and market remittances,” it said.