Money

FG’s tariff freeze pushes power sector subsidy to N1.94trn in 2024-NERC

BY MOTOLANI OSENI

The Federal Government’s decision to freeze electricity tariffs for most consumer categories has triggered a dramatic rise in subsidy spending, with the Nigerian Electricity Regulatory Commission (NERC) reporting that the subsidy bill surged to an all-time high of N1.94 trillion in 2024.

According to NERC’s latest report, the freeze—initiated in December 2022—has remained in effect despite surging inflation and severe naira depreciation, which have significantly raised the actual cost of electricity generation and supply.

The Commission said that maintaining tariffs at pre-2023 levels has created a widening gap between cost-reflective pricing and what consumers pay, which the government is now forced to bridge with record subsidy outlays.

In the first quarter of 2024 alone, electricity subsidies rose to N633.30 billion, a 303 per cent jump compared to the 2023 quarterly average of N157.15 billion, and a staggering 1,699 per cent increase from the 2022 average of N35.21 billion per quarter.

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NERC’s data also show the scale of the long-term subsidy burden, which has never reached current levels. Previous highs include N230 billion in 2015, N310 billion in 2016, N350 billion in 2017, N440 billion in 2018, and N530 billion in 2019.

Subsidy figures remained elevated in 2020 (N510 billion), 2021 (N250 billion), 2022 (N140 billion), and 2023 (N650 billion), before spiking sharply in 2024.

An April 2024 attempt by the Commission to curb rising subsidies saw a sharp increase in electricity tariffs for Band A customers—those who receive a minimum of 20 hours of power supply daily. Tariffs for this category jumped from N66/kWh to N225/kWh, before being slightly reduced to N206.80/kWh in May.

The hike was initially projected to slash subsidy liabilities by N1.14 trillion in 2024. Indeed, government subsidy spending dropped to N380 billion in Q2, but inflation and continued exchange rate instability quickly eroded the gains. By Q3, subsidy costs rose again to N464 billion, and in Q4 they climbed to N556 billion.

With energy costs continuing to rise and the naira under pressure, NERC’s report suggests that unless broader tariff reforms are implemented, the fiscal burden on the government will keep escalating—further straining public finances already stretched by fuel subsidies and debt obligations.

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