Nigeria’s electricity subsidy burden has reached unprecedented levels, soaring from N610 billion in 2023 to N1.94 trillion in 2024, according to the latest report by the Nigerian Electricity Regulatory Commission (NERC). This represents a staggering 219.67 per cent increase, raising concerns about the sustainability of power sector financing under prevailing macroeconomic conditions.
The sharp escalation in subsidy obligations has been linked to the Federal Government’s policy to freeze customer tariffs at December 2022 levels, despite rising cost-reflective tariffs triggered by the depreciation of the naira and inflationary pressures. The report noted that although tariffs for Band A customers were reviewed in April 2024—leading to a temporary subsidy drop—the subsequent directive to maintain all customer tariffs at July 2024 levels reversed those gains.
According to NERC, “The FG directive to freeze all customer tariffs at the December 2022 approved rates despite the increase in the cost-reflective tariffs arising from the major increase in FX rates caused the FGN subsidy to reach N633.30bn in 2024/Q1.” The report revealed that this figure marked a 303 per cent and 1,699 per cent increase when compared to the 2023 and 2022 quarterly subsidy averages respectively.
Despite the growing financial burden, the Federal Government has reportedly only paid N371.34 million out of the N1.94 trillion subsidy obligation for 2024—equivalent to just 0.019 per cent of the total. The unpaid obligations have left power generation companies (GenCos) struggling, with total debt in the sector nearing N5 trillion.
NERC stated that the subsidy was necessitated by the gap between allowed tariffs (what consumers are charged) and the actual cost of delivering power. “When the tariffs allowed for DisCos to charge customers is lower than the cost-reflective tariff as computed by the Commission, the government undertakes to cover the resultant gap… in the form of tariff shortfall funding,” the report explained.
DisCos in Abuja, Ikeja, and Ibadan topped the list of subsidy allocations, receiving N285bn, N272bn, and N236bn respectively. At the national level, the average cost-reflective tariff stood at N175.31/kWh while the average allowed tariff remained at N100.27/kWh—creating a subsidy gap of N75.04 per kilowatt-hour.
The new DisCo Remittance Obligation framework, introduced in January 2024, now requires all DisCos to remit 100 per cent of their obligation to the Market Operator, while the government is expected to pay the subsidy portion directly to the Nigerian Bulk Electricity Trading Plc (NBET). However, this system has done little to alleviate the rising debt, as actual government payments remain far below expectations.
Experts have voiced deep concern about the trajectory of the electricity sector. Power sector analyst Bode Fadipe warned, “The sector is not about to get out of its challenges anytime soon. I have always said it—and I have not seen anything that would make me change my mind—that the power sector as it is currently constituted may not see salvation for the next 20 to 30 years.”
He attributed much of the crisis to the fall of the naira, noting that “almost everything used in power generation, transmission and distribution is imported. Gas is also denominated in US dollars. FX will always affect tariffs.”
On whether subsidy removal could solve the problem, Fadipe expressed scepticism. “A total removal of power subsidies would trigger a higher level of energy theft. We still don’t even know the actual cost of a unit of electricity.”
Meanwhile, business mogul Alhaji Aliko Dangote has urged more private sector investment in the power sector, stressing its immense potential. “We, as a company, are producing over 1,500MW for our own use. Nigeria should not be generating just three times that. We should be aiming for 50,000 to 60,000 megawatts,” Dangote stated.
He argued that if large-scale industrial projects like the Dangote Refinery can succeed, then Nigeria’s power sector can also thrive—if given the right investments and governance. “The sector has been privatised. The government should step aside and let private investors drive growth. Nigerians should stop taking money abroad and invest in our own country.”
