Electricity Subsidy Hits N536bn in Q1

The Federal Government incurred a total of N536.4bn in electricity subsidy obligations in the first quarter of 2025 alone, amid its struggles to pay over N4tn debt owed to power generation companies.

The Nigerian Electricity Regulatory Commission (NERC) disclosed this in its latest report saying the subsidy obligation of the government increased by N64.7bn, from N471.69bn in the last quarter of 2024 to N536.4bn in Q1 2025.

According to the commission, the N536.4bn was 59.16 per cent of the total GenCo invoice for the quarter. NERC stated that in the absence of cost-reflective tariffs, the government undertakes to cover the resultant gap between the cost-reflective and allowed tariffs in the form of tariff subsidies.

But for ease of administration, NERC said “the subsidy is only applied to the generation cost payable by DisCos to NBET (Nigerian Bulk Electricity Trading Plc) at source in the form of a DisCo’s Remittance Obligation.”

To manage subsidy administration, it was said that the government implemented a DisCo Remittance Obligation framework to be paid to the Market Operator, which defines the amount each DisCo is expected to pay to NBET based on what their allowed tariffs can cover.

The remainder, which is the subsidy portion, is paid directly by the Federal Government to NBET and then passed on to GenCos. NBET is expected to invoice the tariff subsidy directly to the Federal Ministry of Finance for onward payment to the GenCos.

However, the Minister of Power, Adebayo Adelabu, repeatedly said that the Federal Government could not meet this obligation, leading to mounting debts across the value chain.

“The DRO represents the total GenCo invoice that is billed to the DisCos by NBET based on what the allowed DisCo tariffs can cover. Furthermore, DisCos are expected to remit 100 per cent of the invoices received from the MO (Market Operator) for transmission and administrative service costs,” the commission stated.

According to NERC, the DRO regime, which replaced the former Minimum Remittance Obligation framework in January 2024, was introduced to prevent the buildup of unpaid subsidy debts on the balance sheets of DisCos, a situation said to have previously distorted DisCos’ financial capacity to invest in their distribution network.

“The DRO regime replaced the Minimum Remittance Obligation framework in January 2024, and DisCos are expected to pay 100 per cent of their DROs. The transition to the DRO regime was necessitated by the risk of unpaid tariff subsidy debts encumbering the balance sheets of the DisCos, thereby preventing them from raising finance to undertake critical investments in their distribution network.

“Thus, the portion of GenCo invoices not covered by DRO is the tariff subsidy which is invoiced directly to the Federal Ministry of Finance by NBET,” the report said.

Despite this mechanism, it was observed that generation companies continue to face funding gaps and delayed payments. While DisCos paid a significant percentage of their adjusted invoices to NBET in Q1, this was based on the subsidised figure and not the full market cost.

Stakeholders warned that the financial strain on GenCos has persisted, affecting their ability to sustain production, invest in capacity upgrades, or carry out critical maintenance, including paying for gas.

NERC noted that due to the absence of cost-reflective tariffs across all DisCos, the Federal Government incurred a subsidy obligation of N536.4bn in Q1, being 59.16 per cent of the total NBET invoice.

It was said that between 2024/Q4 and 2025/Q1, the subsidy obligation of the government increased by N64.7bn from N471.69bn (56.65 per cent of the total GenCo invoice) to N536.4bn (59.16 per cent of the total GenCo invoice).

“The increase in the subsidy obligation of the FGN is a result of the FGN’s policy to freeze allowed tariffs paid by customers despite the increase in the cost-reflective tariffs across the quarters,” the regulator said.

The report added further that in the period under review, the DRO-adjusted invoice from NBET to the DisCos was N370.36bn, while the total remittance made was N354.77bn, which translated to 95.79 per cent remittance performance.

“Comparatively, in 2024/Q4, the DRO-adjusted invoice from NBET to DisCos was N360.96bn, and the total remittance was N336.63bn, which translated to 93.26 per cent remittance performance.

“The 2.53pp increase in DisCos’ remittance performance to NBET between 2024/Q4 and 2025/Q1 can be attributed to the larger increase in collections by DisCos in 2025/Q1 compared to 2024/Q4 (+8.59 per cent), relative to the 2.61 per cent increase in DRO-adjusted invoice from NBET across the two quarters,” it was stated.

Also, disaggregated remittance performance of the DisCos to NBET in 2025/Q1 showed that Benin, Eko, Ibadan, Ikeja, Kano, Port Harcourt and Yola DisCos achieved 100 per cent remittance performance to NBET, while Abuja and Enugu achieved 98.43 per cent and 99.27 per cent remittance performance, respectively.

NERC added that Kaduna DisCo recorded the lowest remittance performance of 37.77 per cent. “A quarter-on-quarter analysis showed that all DisCos except Jos (-10.09pp) and Kaduna (-3.26pp) recorded improvements in remittance performance to NBET in 2025/Q1 compared to 2024/Q4. Port Harcourt (+10.27pp), Benin (+9.97pp) and Enugu (+8.90pp) DisCos recorded the greatest improvements in remittance performance to NBET across the two quarters,” the commission said.

In the period under review, DisCos were said to have made a total remittance of N59.49bn against the cumulative invoice of N61.76bn issued by the Market Operator, translating to 96.32 per cent remittance performance and a 8.00pp increase when compared to 88.32 per cent remittance performance recorded in 2024/Q4 when DisCos remitted N42.30bn out of N47.89bn invoice issued by the MO.

“The disaggregated remittance performance of the DisCos to the Market Operator shows that all DisCos except Jos (72.07 per cent) and Kaduna (52.19 per cent) recorded 100 per cent remittances respectively to the MO. Between 2024/Q4 and 2025/Q1, all DisCos except Jos (-2.28pp) recorded improvements in their remittance performance to the Market Operator, with Kano (+36.81pp) and Kaduna (+35.72pp) recording the most significant improvements,” the report added.

Despite the Ministry of Power’s promise that President Bola Tinubu would soon meet with power generation companies to discuss the N4.7tn debt owed to them, there has been a deafening silence, with no communication extended to the GenCos over two months later.

Last month, the Federal Government said that it planned to pay N2tn of the N4.7tn debt before the end of this quarter, according to the Special Adviser to the President on Energy, Olu Verheijen.

However, despite all the promises, the GenCos told our correspondent last week that the Federal Government had yet to contact them for any discussion about payment or how to see the President.

But the Minister of Power, Adebayo Adelabu, through his media aide, Bolaji Tunji that efforts were still ongoing to arrange a meeting between the generation companies and Tinubu.

SOURCE: The PUNCH