Electricity subsidy gulps N2.8 trn in 7 years — NERC
The Nigerian Electricity Regulatory Commission (NERC) has announced that the federal government paid the sum of N2.8 trillion to subsidies electricity consumed in the country from 2015 to 2022.
Sanusi Garba, the Commission’s chairman stated this during his presentation at the Ministry of Power ministerial retreat in Abuja on Tuesday.
According to him, the federal government from January to April 2023 paid a total of N57 billion to subsidies the revenue shortfalls of the distribution companies (DisCos). And it is expected to pay as much as N1.6 trillion in subsidies in 2024.
“From 2015 almost N2 trillion has been paid by the federal government in subsidies and this is because of the huge gap between what revenue should have been and what it has been. In the current year, the estimated requirements for subsidy is in the region of N600 billion and the projection for next year if nothing is done is about N1.6 trillion,” he said.
Garba explained that the electricity sector has been challenged by issues including insufficient end-user tariffs, poor revenue collection by DisCos, infrastructure deficit, huge metering gap, as well as ineffective contracts that limited the accountability of operators.
He noted that between January 2020 to January 2023, tariffs have been reviewed and increased from 55 per cent of cost recovery to 94 per cent. He added that without the tariff reviews that commenced in 2019, subsidies payable would have grown to about a trillion naira per annum in 2023.
“Service-based tariff was instrumental in the transition to cost reflective tariff. The unification of FOREX and current inflationary pressure in 2024 has pushed cost-reflective tariffs to N124/kWh.
“It is imperative for policy support to review end-user tariffs to minimise fiscal burden.”
Speaking further, Garba noted that several initiatives of the commission and previous government mass metering resulted in the deployment of 2.4 million meters across the country, with less than 10 per cent of meters installed post-privatisation having been funded by DisCos.
“Of 12.43 million electricity customers, 5.41 million have been and 7milion unmetered. Nigeria has a 5.5 million net metering gap to be funded.
“DisCos have only achieved 56 per cent of their expected CAPEX investments from 2015 to 2021, while TCN has achieved 28 per cent of their CAPEX investments from 2013 to 2030,” he said.
In his remarks, Adebayo Adelabu, the minister of power stated that one of the objectives of the Nigerian electricity sector reform programme initiated over 23 years ago is to make electricity available to consumers across the country.
According to him, poor track record in contracting, contract management, and adherence to contractual obligations, among other issues plaguing the electricity supply industry.
“With impartial examination, it is evident that these identified factors erode confidence in the viability of the sector and pose fundamental challenges of inadequate capitalization and limited access to funds for the diverse players along the energy value chain, from gas supply to electricity distribution.
“Even as electricity consumption per capita was at 140 KWh in 2021, relatively low in comparison to neighbouring countries and almost three times lower than the average for Sub-Saharan Africa., Nigeria is a case study in a deep electricity paradox.
“Nigeria has grown to become the host of probably the world’s largest fleet of diesel- and petrol-powered generation capacity that is utilized for baseload supply. Various figures have been mentioned but it is safe to say that this fleet measures no less than 40,000MW of total capacity. At an average operating cost of no less than N=250/kWh as opposed to an average economic tariff today of approximately N=120/kWh (weighted between petrol and diesel generation),” he said.
Speaking further, the minister stated that over 98 per cent of the feedstock powering electricity generation in the country are transition fuels, as Nigeria ramps up its capacity to generate more electricity through renewable means such as solar, hydro, wind, bioenergy and others.
The minister also highlighted the pricing of gas utilized by electricity generating companies in US dollars was a major issue in the sector and a hugely volatile variable that significantly affects the pricing of electricity to end-users.
For him, a preferable option is to ensure that the gas utilized by GenCos is traded in Niara to better manage the foreign currency-related inflationary trends that challenge the application of the Multi-Year Tariff Order (MYTO) methodology.
“While we appreciate the interplay of contractual obligations, economics and the application of the Petroleum Industry Act, it must also be said that, as a matter of urgent national interest and economic survival, we must find ways and means to pursue domestic gas policies and incentivize stakeholders for the supply of gas for inland use in electricity supply, other industrial activities, and conversion to CNG and LPG for transportation and domestic uses respectively.
“Therefore, I would suggest that one of the major deliverables from this policy-making process is a viable method for establishing a sustainable capital investment programme around gas processing and transportation infrastructure with its associated fiscal incentives and policies that will attract/unlock investments into the production of Naira-denominated gas from inland gas basins, and in Non-Associated Gas fields from Nigeria’s various prolific hydrocarbon basins,” he said.
