Electricity Subsidy Rises To N1.6trn As DisCos Raise Tariffs

The Nigerian Electricity Regulatory Commission (NERC) has approved new electricity tariffs for the 11 distribution companies in the country, with effect from January 2024.

NERC chairman, Sanusi Garba, who made this known at a media interaction yesterday, however assured that customers will continue to pay the current tariffs as the federal government is to subsidise the increased tariffs to the tune of N1.6 trillion this year.

Garba said the federal government will continue to subsidise electricity to ease the financial burden on Nigerians due to economic challenges in the country.

NERC also approved a monthly tariff review of the DisCos going forward arising from changes in exogenous indices, which include changes in the inflation rates, Naira/USS exchange rates, and gas-to-power prices.

Recall that before now the Multi Year Tariff Order (MYTO) allowed for bi-annual minor tariff reviews while major tariff reviews were planned for every five years.

“Government has decided for now, arising from the cost of living crisis and so many others, to in the meantime continue to subsidise electricity.

“In the new tariff order just published by the commission, you will discover that tariff is not going up but you will see what the Electricity Distribution Companies (DisCos) should be charging.

“You will also see in the tariff order the amount of subsidy the government will be providing to cover the gap between what they will charge and what they are allowed to charge,” he said.

According to him, the new tariff contains what the DisCos are allowed to charge based on government policy, if they are to remain in service.

He said that in the tariff, NERC included some provision that would ensure that the DisCos pay what they are obligated to pay.

A breakdown of the approved tariffs indicates that cost-reflective tariff for Abuja Electricity Distribution Company is N120.88 per kilowatt hour (kwh), however, a tariff of N63.24/kwh is allowed by NERC, indicating a shortfall  of N58.12/kwh which subsidised by the federal government.

The commission said that in line with the policy direction of the federal government policy on electricity subsidy, the allowed tariffs are frozen for all customers at the rates payable since December 2022.

With this policy, the estimated subsidy benefit for customers under AEDC franchise in 2024 is approximately N233.26bn which translates to N19.44 billion monthly

“The allowed tariff is with effect from 1″ January 2024 and shall remain in force, subject to further policy direction of the FGN,” the commission stated.

For Ikeja Electric, the Cost reflective tariff is N128.18 While approved tariff is N56.6 leaving a shortfall of N53.5/kwh.

With this policy, the estimated subsidy benefit for customers under Ikeja Electric franchise in 2024 is approximately N238.201 billion (i.e. N19.85 billion monthly) also effective from tariff is with effect from 1″ January 2024.

The estimated subsidy benefit for customers under Ibadan DisCo franchise in 2024 is approximately N199.841 billion (i.e., N16.65 billion monthly).

Garba said that the Electricity Act that was signed by President Bola Tinubu in 2023 presented an opportunity for states to make laws and take charge of providing electricity in their franchise areas.

He said that the commission remained committed to working with the states in such a manner that the existing public utilities were nurtured to provide services to Nigerians and were utilised for what they were intended for.

On metering, the chairman said that the commission had identified that the Electricity Distribution Companies had challenges with finances to meter their customers.

He said that the rate of metering had been adversely impacted by the inability of DisCos to raise the required capital from the banks.

“To reduce the rate of estimated billing, the commission created a framework under which the distribution companies can raise some amount of money to meter customers.

“So we decided that from the market revenues, we set aside a fixed amount that is dedicated for the provision of metering

“We are not saying that the money from the market on a monthly basis is the money to buy a meter.

“It is a potential lender to raise a pathway to pay whatever loan DisCos are going to get to provide meters,” he said.