The Nigerian Electricity Regulatory Commission (NERC) has revealed that the federal government spent ₦199 billion on electricity Subsidies for December 2024. In comparison to ₦194.26 billion in November 2024, this sum represents a 2.76% increase. This information was made public by NERC on its website in its December 2024 Multi-Year Tariff Order (MYTO) report. Between January and November 2024, the government increased its spending on subsidies by 204.15% from ₦628.61 billion in 2023 to ₦1.283 trillion. In the first quarter of 2024, the subsidy costs were N633.30 billion; in the second quarter, they dropped to ₦380 billion.
In the third quarter, the subsidy costs increased by 36.46% to ₦518.55 billion. Notwithstanding persistent problems including nationwide system breakdowns, the subsidy stayed at ₦380.06 billion by October and November. Meanwhile, all customer groups continued to pay the same amount of electricity tariffs, as Band-A consumers’ tariff remained at 209/kWh, while Band-B through E customers continued to pay the same prices they have since December 2022. With safeguards for the less privileged electricity consumers, the FGN policy on subsidies and electricity rates calls for a gradual shift to end-user Tariffs that are cost-reflective.
Electricity generation costs have increased significantly.
Dramatic increase in subsidies was driven by a number of factors such as changes in the available Electricity Generation capacity, Inflation reaching 33.9%, and an increase in the currency rate, which is currently fixed at ₦1,687.45 per dollar. The government is being forced to maintain affordable consumer pricing as a result of these economic difficulties, which have increased the cost of producing power. NERC study emphasises the complexity of Nigeria’s power system and highlights the difficulties in controlling rates in the face of economic pressures.
In order to help bridge the gap between the real generation costs and the prices that discos are permitted to charge customers, the Nigerian Bulk Electricity Trading (NBET) firm applies the 2024 subsidy to the generation expenses that are billed to the distribution companies (Discos). Despite the subsidy efforts by the government, generation costs have increased significantly, from ₦63.8 per kilowatt-hour in January 2024 to ₦117.27 per kilowatt-hour by November, resulting in increased government spending.
Govt faces the challenge of controlling rising subsidies.
Only ₦39.24 billion could be recovered by Discos in November, despite the fact that generation expenses totaled ₦67.095 billion. The rise in subsidy spending also corresponds with an increase in tariff rates, which have been raised for all consumer bands from A to E. While committed to protecting consumers from sharp hikes, the government also faces a dual challenge of controlling the increasing burden of subsidies to reduce spending. NERC has disclosed that reversing the recent electricity tariff hike, which sparked public outcry, could result in a subsidy burden of ₦3.2 trillion
Even in the face of this high subsidy, Band A, which represents premium clients with the most dependable electricity supply, now pays noticeably higher rates per kilowatt-hour, similar to Band E, which has the least dependable service. The goal of this action was to close the gap between the permitted tariff, which the government has been subsidising, and cost-reflective rates. Nevertheless, this recent tariff structure has left many Nigerians questioning the logic of massive subsidy allocations if consumers are still facing higher bills.
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With the current trajectory, Nigeria’s mounting electricity subsidy has become a deep strain on the nation’s finances, which could continue to rise in the coming year. This scenario presents a significant challenge: how to balance the need for affordable electricity with the imperative to reduce subsidy expenditures and ensure the power sector’s sustainability. The endless cycle of subsidies reflects deeper structural issues in electricity generation, distribution, and pricing policies, which remain unresolved despite years of privatisation and reform initiatives.