In 2023, the Federal Government of Nigeria allocated a substantial ₦628.61 billion towards electricity subsidies as part of its efforts to stabilize the power sector and alleviate the economic burden on citizens. This significant financial commitment was revealed in the latest data released by the Nigerian Electricity Regulatory Commission (NERC) on Wednesday.
Throughout the year, the quarterly subsidies surged from ₦36.02 billion in the first quarter to a staggering ₦252.76 billion in the fourth quarter, underscoring the government’s struggle to maintain stability in power distribution amidst economic fluctuations.
During this period, power distribution companies (Discos) witnessed an increase in revenue collection, totaling ₦1.08 trillion. Quarterly earnings consistently rose, with Discos generating ₦247.09 billion in Q1, ₦267.86 billion in Q2, ₦267.61 billion in Q3, and reaching a peak of ₦294.95 billion in Q4.
The rise in subsidies is primarily attributed to the non-implementation of cost-reflective tariffs, which necessitates the government to bridge the gap between the cost-reflective and allowed tariffs. This gap mainly concerns power generation costs paid by Discos to the Nigerian Bulk Electricity Trading Company (NBET), the principal power trader in the sector.
According to the NERC, the substantial subsidy in the fourth quarter was largely due to government policies such as exchange rate harmonization while maintaining consumer tariffs at December 2022 levels.
“This surge in subsidy obligation indicates that, in Q4 2023, Discos were only required to cover 45% of the total invoice received from NBET,” stated the NERC in its report.
Furthermore, the report highlights operational challenges encountered by Discos, including a decline in collection efficiency, which stood at 73.79% in Q4, down from 76.56% in Q3.