Electricity subsidy removal calls intensify amid rising industry debts

There are concerns among Nigerians that further increases in electricity tariffs could worsen their economic situation, although the government and operators have consistently called for cost-reflective tariffs, write DARE OLAWIN

As it happened with fuel subsidy, the government and major players in the power sector have all agreed on the need to allow customers to pay for the electricity they consume. To them, electricity is no more a service, but a commodity that must be fully paid for by whoever is ready to buy it. While those in the government have been clamouring for an end to the electricity subsidy regime because it was no longer sustainable, investors in the supply chain want a fully deregulated power sector, saying lack of liquidity is ‘killing’ the industry.

Tinubu delaying process

It was gathered that stakeholders in the power sector have been on President Bola Tinubu’s neck to remove the subsidy on electricity. However, there were reports that the President had decided not to heed the request to end the electricity subsidy regime because of the negative effect it would have on Nigerians.

The President is very aware of the fact that the Nigerian economy ran into a problem after he removed fuel subsidy upon his assumption of office. This, coupled with his policy to float the naira, has made feeding difficult for many Nigerians as prices of commodities continued to skyrocket.

As a result, the repeated calls by stakeholders in the electricity value chain that subsidy be removed are being rebuffed by the President who fears adding more to the sufferings of the masses. Our correspondent learnt that the stakeholders had succeeded in convincing the Minister of Power, Adebayo Adelabu, that the only way to have an effective power sector was to allow liquidity through cost-reflective tariffs, which could only be achieved if the government removed the subsidy and allowed customers to pay for their consumption.

Adelabu had on many occasions emphasised that the government could no longer sustain the payment of subsidy on electricity. In November 2023, Adelabu said that the President stopped the implementation of a hike in electricity tariff and insisted that subsidy be paid on power consumed nationwide.

Speaking on the call for a cost-reflective tariff, which would lead to a hike in the amount payable for power, Adelabu said, “The power sector is an industry that is very sensitive to any leader. You cannot jump overnight and implement the cost-reflective tariff. I can tell you that till today the government still subsidises power. Tariffs should have been raised months back, but Mr President said until we are able to achieve regular and incremental power supply, we can’t touch the tariff.”

In January, the Nigerian Electricity Regulatory Commission released the 2024 electricity tariffs, which showed that the Federal Government was to shoulder about N1.6tn subsidy for the year, to avert a hike in tariff.

Instead of customers paying N122/KWh in some areas, the NERC allowed the distribution company to charge N56/kWh, leaving the remaining for the government to bear as subsidy. However, Adelabu recently said it was now “very difficult to sustain subsidy on electricity” because the country’s power debt had continued to soar.

The minister stated that only N450bn was appropriated for electricity subsidy in the 2024 budget, but findings by the NERC showed that subsidy would gulp about N2.9tn this year. He revealed that the country was currently indebted to the tune of N1.3tn to electricity generating companies, while the debt to gas companies was $1.3bn.

The minister had been complaining that the Federal Government had not been able to fulfill its promises to Discos in paying electricity subsidy when due.

“We also want to appeal to the Federal Government that once there is a subsidy promise, it has to be fully funded. If our government is not ready to fund subsidies, it is actually better for us to migrate to a fully cost-reflective tariff; because liquidity is a major issue in the sector, which has led to a huge debt being owed power generating companies. And once they are owed, they are also unable to pay the gas suppliers.

“When the gas suppliers are not paid, they will be unwilling to supply regular gas to them. So, why are these debts piling up? Part of the debts is owed by the Discos. The Federal Government also owes a huge portion of these debts, which relates to the unfunded portion of the subsidy,” Adelabu told newsmen during his last visit to Olorunshogo and Omotosho power plants in Ogun and Ondo States, respectively.