In the first quarter of 2024, the Nigerian Electricity Regulatory Commission disclosed that the Federal Government’s electricity subsidy obligation increased significantly from N252.76bn to N633.30bn.
According to NERC, the electricity subsidy surged to N211.10bn per month in the initial three months of 2024, up from N84.25bn in the last quarter of 2023.
The regulator attributed this sharp increase to the government’s decision to harmonize exchange rates and the directive to maintain end-user customer tariffs at the December 2022 rates.
Explaining further, the regulator stated, “Due to the absence of cost-reflective tariffs, the government covered a subsidy obligation of N633.30bn in Q1 2024, a 150.56% increase compared to Q4 2023.”
The absence of cost-reflective tariffs led the Federal Government to bridge the gap between actual and allowed tariffs through subsidy payments.
To simplify administration, the subsidy is applied to the generation cost paid by Distribution Companies (Discos) to the Nigerian Bulk Electricity Trading Plc as Disco’s Remittance Obligation (DRO).
During the first three months of the year, the DRO-adjusted invoice from NBET to Discos was N65.96bn with a 99.33% remittance performance.
Meanwhile, the International Monetary Fund urged the Nigerian government to eliminate implicit energy subsidies, warning that they could consume three percent of GDP in 2024.
As calls intensify for the reversal of the Band A tariff to N68/kWh, the IMF recommended, “The tariff adjustment will help reduce subsidies by 0.1% of GDP while continuing to assist the poor, particularly in rural areas.”