Nigeria Slashes Electricity Subsidies by 80% Amid DisCos’ Tariff Increase Demands

The Nigerian government has substantially reduced electricity subsidies by approximately 80% from 2019 to 2022, according to the latest report from the Nigerian Electricity Regulatory Commission (NERC). The support for the Nigerian Electricity Supply Industry (NESI) dropped from N49.50 billion per month in 2019 to N10.17 billion per month as of the fourth quarter of 2022.

The NERC report highlighted that the N10.17 billion monthly support represents a significant decrease compared to the peak of N49.50 billion per month provided in 2019. This move is part of the government’s ongoing efforts to implement reforms in the electricity sector, with the ultimate goal of eliminating subsidies entirely. The intention is to create a market that operates solely on commercial terms, without government intervention.

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The major portion of the government’s support to the electricity sector goes to the Nigerian Bulk Electricity Trader (NBET), the operator responsible for payment within the electricity value chain.

NERC’s report emphasizes that the implementation of Service-Based Tariffs presents opportunities for Distribution Companies (DisCos) to enhance customer service through consistent and reliable energy supply. This offers a clear path to increased revenue without resorting to broad-based tariff hikes.

In response to the reduction in government subsidies, DisCos are calling for a rise in electricity tariffs. The regulator confirmed that all eleven successor electricity distribution companies have submitted applications for a rate review with the Nigerian Electricity Regulatory Commission. Their request for a rate review is justified by the need to consider changes in macroeconomic parameters and other factors impacting service quality, operations, and long-term sustainability.

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Among the factors cited by DisCos are the depreciation of the exchange rate, currently around N785/$1, and the inflation rate of 22.41% in May 2023. They argue that these factors should be reflected in the tariff structure since the last tariff increase was based on an exchange rate of N400/$1, which was the official rate at the time.

The NERC fourth quarter report indicates positive progress in revenue collection within the NESI. The total revenue collected by all DisCos amounted to ₦243.65 billion, out of the ₦332.28 billion billed to customers, resulting in a collection efficiency of 73%. This represents a 15.65% increase in total collections compared to the third quarter of 2022 when the revenue stood at ₦210.67 billion.

The Nigerian government’s move to curtail electricity subsidies and encourage DisCos to operate more efficiently aligns with its efforts to bolster the electricity sector’s financial sustainability. As the government aims to transition to a market-driven energy industry, stakeholders will closely monitor the impact of these changes on electricity prices and overall service quality.

Source: Business Day Nigeria

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