The federal government has incurred an electricity subsidy of N464.12 billion in the third quarter of 2024, indicating an N84.06 billion increase from the N380.06 billion recorded in Q2, despite tariff increment for Band A customers in April 2024
This development marks a 54.71 percent subsidy on total generation companies (GenCos) invoices during the period, according to the Nigerian Electricity Regulatory Commission (NERC).
The latest Nigerian Electricity Regulatory Commission (NERC) quarterly report revealed that the rise in subsidy payments is attributed to the absence of cost-reflective tariffs across all distribution companies (DisCos) and the federal government’s policy to freeze allowed tariffs paid by customers despite the increase in cost-reflective tariffs.
It stated, “It is important to note that due to the absence of cost-reflective tariffs across all DisCos, the Government incurred a subsidy obligation of N464.12 billion. Between 2024/Q2 and 2024/Q3, the subsidy obligation of the government increased by N84.06 billion, from N380.06 billion.”
“The increase in the subsidy obligation of the federal government is a result of the federal government’s policy to freeze allowed tariffs paid by customers despite the increase in the cost-reflective tariffs,” the report added.
Yusuf Ali, commissioner for planning, research, and strategy at the NERC, during a presentation at PwC’s Annual Power and Utilities Roundtable in Lagos, noted that without tariff reforms implemented between 2020 and 2023, the subsidies would have increased even more, particularly amid the macroeconomic challenges over the past 20 months.
Ali explained that between 2023 and 2024, the depreciation of the local currency and other macroeconomic factors caused cost-reflective tariffs to rise by 118 percent, while subsidies increased by 270 percent.
Although the April tariff hike for Band A was intended to reduce government subsidy obligations, the country’s difficult macroeconomic conditions have negated this effort.
He projected that the total subsidy 2024 will reach N2.4 trillion, with the subsidy for December 2024 estimated to be approximately N260 billion, up from N202 billion the previous month.
Additionally, Ali highlighted a significant improvement in monthly revenue collections within the electricity sector, which has grown from N31 billion in July 2017 to N160 billion in July 2024.
This represents a 416 percent increase, driven by initiatives that improved payment discipline among Distribution Companies (DisCos). He credited introducing the Minimum Remittance Order/Discipline and Compliance Regime (MRO/DCR) for compelling DisCos to remit more collections to the market.
Read also: FG to spend N2.4trn on electricity subsidy by 2024
This has allowed for a more sustainable financial structure, with the permitted cost-reflective tariff for DisCos rising from ₦60/kWh in January 2020 to ₦123/kWh in April 2024, ensuring that DisCos could collect sufficient revenue to cover their operational costs.
NERC’s Q3 report also highlighted that the total DisCos remittance to the Nigerian Bulk Electricity Trading Plc (NBET) stood at N324.83 billion, representing an 84.66 percent remittance performance.
This is an improvement from Q2’s performance of 79.09 percent, driven by a 19.45 percent increase in remittances compared to an 11.38 percent rise in NBET invoices during the quarter.
NERC’s data also revealed that Eko DisCo achieved a 100 percent remittance performance, while Ikeja and Yola DisCos recorded 94 percent and 95 percent respectively.
Conversely, Kaduna and Kano DisCos lagged behind with remittance rates of 30.23 percent and 66.73 percent. Notably, seven DisCos improved their remittance performance in Q3, but declines were recorded in Yola, Port Harcourt, Kano, and Jos.
The DisCos also recorded a shortfall in revenue collection as compared to electricity billed, as the total revenue collected by all DisCos in the period was N466.69 billion out of N626.02 billion billed to customers.
Also, the total energy received by all DisCos was 7,606.84GWh while the energy billed to end-use customers was 6,249.21GWh, translating into an overall billing efficiency of 82.15 percent.
EkoDisCo collected the highest revenue (N87.02 billion) in the period, followed by Ikeja DisCo at N83.55 billion. While Yola DisCo collected the least revenue at N5.41 billion.
Also, of the total revenue collected in the period, Abuja DisCo collected N78.28 billion, Ibadan DisCo collected N57.60 billion, Benin DisCo collected N41.09 billion, Enugu DisCo collected N36.07 billion, Port Harcourt DisCo collected N29.22 billion.
Others include, Kano DisCo at N20.64 billion, Jos DisCo collected N16.37 billion, Kaduna DisCo collected N11.40 billion.
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