FG to Implement Cost-Reflective Electricity Tariffs to Boost Nigeria’s Power Sector

Nigeria’s Power Sector Set for Cost-Reflective Tariffs: What You Need to Know

The Federal Government of Nigeria is set to implement cost-reflective electricity tariffs, a move aimed at ensuring financial sustainability in the power sector. This change is expected to impact electricity consumers, as tariffs are likely to increase gradually over the coming months.

Why Nigeria is Transitioning to Cost-Reflective Tariffs

According to Olu Verheijen, Special Adviser to the President on Energy, the shift is necessary to attract private sector investment and improve power supply. She emphasized that the new tariffs would reflect the actual cost of electricity generation and distribution while maintaining subsidies for low-income households.

Speaking at a World Bank-backed energy conference in Tanzania, Verheijen highlighted the need for a financially viable power sector that can support Nigeria’s economic growth.

“One of the key challenges we’re looking to resolve over the next few months is transitioning to a cost-efficient but cost-reflective tariff,” she stated.

Government’s $32 Billion Power Expansion Plan

To address Nigeria’s electricity challenges, the government has unveiled an ambitious $32 billion power expansion plan, aimed at improving electricity access and reliability by 2030. The plan includes:

• $15.5 billion from private investors
• Funding from public sources such as the World Bank and the African Development Bank

Germany’s Siemens AG is also working with the Nigerian government on a $2.3 billion project to upgrade power transmission and distribution infrastructure. Additionally, decentralized renewable energy projects have provided power to over 7 million rural Nigerians.

Current Challenges in Nigeria’s Power Sector

Nigeria’s electricity sector has struggled with inefficiencies since its privatization in 2013. Some of the major challenges include:

• Unreliable power supply – Despite 14 gigawatts of installed capacity, only 4 to 5 gigawatts are reliably delivered to homes and businesses.
• High operational costs – Power companies rely on government subsidies as current tariffs do not fully cover costs.
• Frequent tariff hikes – Electricity tariffs were tripled for some customers last year.
• Pressure from power companies – Electricity distribution companies (DisCos) argue that cost-reflective tariffs are necessary for better service delivery.

Impact on Nigerian Consumers

While the new tariff model will likely lead to an increase in electricity bills, the government has assured Nigerians that:

• Subsidies will continue for vulnerable consumers
• More private investments will improve power supply
• The long-term goal is a stable and efficient electricity sector

Nigeria, with a population of 237 million, has an electricity access rate of approximately 62%. However, frequent grid failures continue to limit productivity and economic growth.

Nigeria’s Energy Goals for 2030 and Beyond

Verheijen emphasized that Nigeria’s energy policies must align with its broader economic goals.

“Your energy policies have to be closely linked with your own ambition for your country. Our own ambition is to be a $1 trillion economy in five years and to move to an upper-middle-income country in 25 years.”

What You Should Know

• In 2024, Nigeria’s energy sector attracted $6.7 billion in investments.
• The Federal Government is prioritizing the National Mass Metering Programme (NMMP) to ensure fair billing for consumers.

The shift to cost-reflective tariffs is a bold step towards stabilizing Nigeria’s power sector. While it may come with short-term challenges, it is expected to create a more sustainable and investment-friendly electricity market in the long run.

Stay updated on Nigeria’s energy policies and power sector developments by following our news updates.

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