FG to Pay N1.6tn Power Subsidy, Suspends Electricity Tariff Hike
The Nigerian Electricity Regulatory Commission, released the 2024 electricity tariffs which showed that the Federal Government is to shoulder about N1.6tn subsidy this year to avert electricity tariff hike.
In the tariff review applications of the 11 power distribution companies in Nigeria, the NERC revealed what it approved as their different cost-reflective tariffs and what was allowed as tariffs by the commission following the Federal Government’s subsidy.
The NERC disclosed this in the regulatory instruments on the Multi Year Tariff Order 2024 for the different power distribution companies.
It said the order shall take effect from January 1, 2024, and shall cease to be effective on the issuance of a new tariff review order by NERC for each particular Disco.
The reports indicated that the tariffs should naturally rise considering various economic fundamentals and industry parameters such as the rise in foreign exchange, cost of gas, inflation, among others.
But an analysis of the MYTO 2024 documents for various Discos indicated that the NERC retained the electricity tariffs for 2023, based on the subsidy being paid by the government this year.
Taking Ikeja, Benin and Abuja Discos for instance, while the cost-reflective tariffs approved by NERC for the Discos for 2024 were N112.10/Kilowatt-hour, N126/kWh and N120.88/kWh respectively, what the regulator approved for the power firms were N56.6/kWh, N60.1/kWh and N63.24/kWh respectively.
It was observed that the NERC retained the tariffs charged by the Discos in 2023, as the Federal Government would pay their respective outstanding balance through subsidy this year.
Further analysis of the reports showed that the subsidy for only the month of January 2024 which the government would incur for consumers under Ikeja Disco was N19.85bn; for Benin Disco, N11.74bn; and for Abuja Disco, N19.44bn.
The cumulative subsidy for the entire year is what the power sector regulator puts at N1.6tn.
It must, however, be stated that what the Discos submitted to the NERC as their own calculated cost-reflective tariffs were far higher than the cost-reflective tariffs approved for them by the regulator.
However, despite approving lower cost-reflective tariffs for the power firms, the allowed tariffs were further reduced, as the balance would be sorted by the N1.6tn subsidy to be paid by the Federal Government.
The Federal Government has been paying subsidies on electricity before now, but it has not been this much.
For instance, in December the Federal Government spent N375.8bn on electricity subsidy between January and September 2023, as power consumers paid a total of N782.6bn for the commodity during the same period.
The report stated that in the first quarter of 2023, the Federal Government subsidised power by N36bn, this increased to N135.2bn in the second quarter, and jumped to N204.6bn in the third quarter. Figures for the fourth quarter are not released yet.
The NERC, however, stated on Wednesday that the N1.6tn subsidy for 2024 was too high and stressed that it was not sustainable.
It also revealed that four states had developed their electricity law, while four others were in the process of completing theirs.
Providing explanation on the new tariff order released by the commission, the Chairman, NERC, Sanusi Garba, said, “On the MYTO, I want to correct the wrong impression that for one year we haven’t had any reviews.
“The reality is that the reviews are being done, but what has happened is that what you pay as a customer is a blend of regulation and policy. So if we determine that you should be paying N150 and the Federal Government says ‘no you should pay N60, I will pay the difference,’ then that’s what it is. The government will now provide the money.
“So that is why in the current tariff order, you will see that this is what you should pay, while this is what the government says you should pay, because the government will provide the difference, until there is a change of policy.”
Also commenting on the development, the Vice Chairman, NERC, Musiliu Oseni, declared that the N1.6tn electricity subsidy was unsustainable, stressing that subsidy was more beneficial to the rich.
He said, “In this order, we provided what the tariffs are supposed to be, and what is being charged based on the subsidy policy of the government. And in each order, you will see the amount of subsidy per Disco.
“And in total, this year we are heading to about N1.6tn subsidy, which most likely everybody here will feel is not sustainable. If nothing is done to electricity tariffs, that is what the subsidy will likely be. Now, how much is the total budget of this country?
“You can do the maths and find out the percentage that that will represent, and whether we should continue to do that. Meanwhile, evidence has shown that it is the rich that benefit more from the so-called subsidy.”
Reacting to what his vice said, Garba stated that “hopefully, going forward, we will focus more on the vulnerable customers in terms of the benefit of subsidy. Then those who can truly afford the true cost of electricity will pay for it.”
On states that have enacted their own electricity laws, the Commissioner, Legal, Licencing and Compliance, NERC, Dafe Akpeneye, said four states now have their own electricity laws, while four others were making finishing touches on theirs.
Outlining states that have developed their power laws, he said, “Basically it is Ondo, Ekiti, Enugu and Anambra. Lagos, Osun, Edo and Kano are work in progress.”
In June 2023, President Bola Tinubu assented to the electricity bill, which empowers states, companies and individuals to generate, transmit, and distribute electricity.
The new electricity law repeals the Electricity and Power Sector Reform Act of 2005 and consolidates the laws relating to the Nigerian Electricity Supply Industry.
Recall that the senate had passed the electricity bill in July 2022 to solve the sector’s challenges.
