FG cuts electricity subsidies by 80% as DisCos demand tariff increase

The Federal Government’s subsidy to the electricity sector has fallen by about 80 percent between 2019 and 2022 an analysis of the sector regulator’s latest report shows, as power companies ask for an increase in power tariffs.

In its third quarter report, the Nigerian Electricity Regulatory Commission (NERC) said government support for the Nigerian Electricity Supply Industry (NESI) fell from N49.50in 2019 to N10.17 as at the fourth quarter of 2022.

“The ₦10.17 billion per month support represents a major reduction in the size of government subsidy support to the NESI which peaked at around ₦49.50 billion per month in 2019,” the commission said in its report.

The document said as implementation of government reforms continues, the goal is to eliminate subsidies completely, thereby allowing the market to operate purely on commercial terms without government intervention.

Government’s support to the electricity sector largely goes to the Nigerian Bulk Electricity Trader (NBET), the operator in the electrtricity value chain that pays all others.

NERC in its report stated that the introduction of the Service-Based Tariff offered opportunities for DisCos to improve customer service through sustained quality energy supply, providing a clear path to increased revenue without broad-based tariff increases by DisCos.

The Commission said ongoing DisCos investments in infrastructure and metering initiatives will result in a greater volume of reliable energy supplied to customers, improved revenue assurance and, in so doing, increased collections and market remittances.

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Meanwhile DisCos are clamouring for a rise in the electricity tariff as government subsidies fall. The regulator in a published advertorial said that the eleven (11) successor electricity distribution companies have filed an application for a rate review with the Commission.

It stated that the request for rate review is premised on the need to incorporate changes in macroeconomic parameters and other factors affecting the quality of service, operations and sustainability of the companies.

For DisCos, factors including the increase in exchange rate, which is about N785/$1, inflation rate at 22.41 percent in May 2023 among others should be reflected in the tariff as the last tariff increase was benchmarked on N400/$1 being the official exchange.

“Pursuant to Section 116 (1) and 2(a&b) of the Electricity Act 2023 and other extant rules, the eleven (11) successor electricity distribution companies (“DisCos”) have filed an application for rate review with the Nigerian Electricity Regulatory Commission.

“The request for rate review is premised on the need to incorporate changes in macroeconomic parameters and other factors affecting the quality of service, operations and sustainability of the companies,” the document stated.

The NERC fourth quarter report stated that revenue into the NESI is rising. The total revenue collected by all DisCos was ₦243.65 billion out of ₦332.28 billion billed to customers —this translates to a collection efficiency of 73 percent.

While the total collections increased by 15.65 percent (compared to ₦210.67 billion in third quarter of 2022).