Nigeria is set to increase energy prices by nearly three times in the coming weeks, according to sources in the presidency. This move aims to encourage fresh investments and reduce the $2.3 billion currently being spent on capping tariffs. Unidentified sources have stated that power companies will have the opportunity to increase prices to 200 naira per kilowatt-hour for urban consumers this month, which is a significant rise from the current 68 naira. It is believed that these consumers make up 15% of the population but consume 40% of the nation’s electricity, according to the sources.
The economy of Nigeria is suffering due to unreliable power supply and increasing subsidy costs, which have had a negative impact on government finances. This has resulted in a diversion of funds away from infrastructure projects like road construction and healthcare spending. President Bola Tinubu is taking steps to address price distortions that persist despite the breakup of the state-owned power company and its sale to private investors. The spokesperson for the presidency, Bayo Onanuga, stated that any official statements regarding the electricity sector will be determined after consulting with distribution and generating companies.
Electricity sector is facing a deficit of around 2trn naira in capital.
He emphasized that the presidency is unable to comment further at this time due to the current challenges faced by the electricity sector. According to reports, Nigeria’s financially struggling electricity distribution companies are pushing for an increase in tariffs in order to better cover expenses and improve their overall financial situation. In 2013, the country shifted to private ownership of power generation and distribution. However, tariffs are still regulated by the Nigeria Electricity Regulatory Commission, a government entity.
Also, power companies are restricted from charging fees that cover the full cost of electricity distribution, leading to the government providing subsidies to compensate for the shortfall. Government officials have previously stated that the electricity sector is facing a deficit of around 2 trillion naira in capital, and they have emphasized the importance of attracting fresh investors to help rejuvenate the industry. By only providing subsidies to those in rural areas, the government is not only cutting back on spending, but also supporting those in need.
IMF raised concerns about the potential fiscal impact on Nigeria’s GDP.
Previously, the intervention cost around 120 billion naira each month until the currency devaluation in January. The International Monetary Fund raised concerns recently about the potential fiscal impact on Nigeria’s gross domestic product in 2024 if fuel pump prices and electricity tariffs are kept below cost recovery, estimating it could amount to as much as 3%. Despite having abundant gas and hydro capabilities, Nigeria experiences power outages due to its reliance on a grid electricity system that only provides less than 4,000 megawatts to its population of over 218 million.
In comparison, South Africa, which has a population almost a third the size of Nigeria’s, boasts a capacity of around 52,000 megawatts. The Nigerian Midstream and Downstream Petroleum Regulatory Authority announced a price hike for natural gas. This will affect power companies as they will now be required to pay $2.42 per one million British thermal units, up from the previous rate of $2.18 MMBtu, used for generating over 70% of the electricity used in the country.
Related Article: Curbing Electricity Challenge in Nigeria
During his New Year address, Tinubu vowed to address the power supply issues caused by inconsistent revenue collection and an outdated national grid, forcing many residents to rely on loud generators for their electricity needs. Raising the benchmark interest rate by 1,325 basis points since May 2022 to a record 24.75% is expected to further burden the already struggling consumer and hinder the central bank’s attempts to control inflation in the West African nation. With approximately 40% of the population living in extreme poverty, the sharp increase in price growth to 31.7% in March is exacerbating the economic challenges faced by the country.
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