The thirty-six State governors of Nigeria have recommended the phasing out of electricity subsidy in the country to ensure liquidity in the power sector.
This is contained in the Nigeria Governors’ Forum recommendations to the federal government on the state of power in the country.
In their report, the governors’ forum highlighted that over the past 15 years, electricity subsidies and other financial interventions in the power sector have proven ineffective.
They noted that these subsidies have contributed to the inefficiency of power distribution companies (DisCos), resulting in inadequate service provision.
Furthermore, the governors emphasized that the subsidies predominantly benefit a small fraction of customers directly connected to the national grid.
“The States believe that electricity subsidies and other forms of financial interventions in the power sector by the FG over the last 15 years have been inefficient and ineffective so far.
“Moreover, the so-called electricity subsidies benefit only customers who are connected to the national grid and enjoy some form of supply reliability. Millions of households, particularly in underserved and unserved communities, pay more than twice the average true cost of on-grid supply.
“To this end, States recommend that wholesale and retail electricity subsidies to customers and across the NESI value chain are reduced and eventually eliminated over time, except for pre-defined customer categories or in line with national economic growth initiatives” the report read.
In addition, the governors said a new model of electricity tariff that is cost-reflective be implemented to encourage growth in the sector.
The governors said the tariff should determined by the State according to the market and electricity policies of each State.
They added that the new tariff system will encourage market sustainability across board.
“It should be recognized that States will implement different end-user tariff methodologies within their markets according to the state electricity policies and strategic implementation plans, viability and market sustainability requirement and peculiar socio-economic characteristics in States.
“However, States recommend that electricity tariffs should be both efficient and cost-reflective across the Federation,” they said.
Following the announcement of the revised electricity tariffs for Band A customers in the country from N66 per kWh to N208 per kWh, the federal government stated that the newly approved tariff is anticipated to cut down the subsidy for the fiscal year 2024 by approximately N1.14 trillion.
Meanwhile, Nairametrics reported that the government paid around N1.67 trillion as electricity subsidy in 2024 according to data gleaned from the new tariff plan for the eleven Electricity Distribution Companies across the country.
The figure represents an increase of 170% from the N619 billion reportedly paid in 2023 according to the same document.
While NERC provided for electricity subsidy in 2024, there is no provision for subsidy in the year 2025, 2026 and 2027.
The Chairman of the NERC had hinted that the tariff will be adjusted with time, and the continuation of the electricity subsidy is due to the increase in inflation and cost of living across the country.
Curled from Nairametrics
