BusinessDay
Nigeria's leading finance and market intelligence news report.

Here’s what it could cost FG to provide Nigerians 2 months of free electricity

.... await stimulus package lawmakers haven’t passed

The Federal Government of Nigeria would have to pay electricity suppliers an estimated N120billion to provide Nigerians free electricity for two months, BusinessDay analysis show.

According to data from the Nigerian Electricity Regulatory Commission, (NERC), during the third quarter of 2019, a total invoice of ₦179.66billion was issued to the eleven (11) DisCos for energy received from the Nigerian Bulk Electricity Trading Company (NBET)  and for service charge by the Market Operator.

When this is divided for three months, it comes to an estimated N60billion a month and N120billion for two months.

Sunday Oduntan, executive secretary of Association of Electricity Distribution Companies (ANED) told BusinessDay by phone that the free electricity for two months is solely the initiative of the Federal Government.

“It is not free from DisCos as there is a value chain. What we issued is a statement of support for the Federal Government’s plan,” said Oduntan.

However, DisCos have been unable to fully settle this market invoice. According to the report, only a sum of ₦58.81billion of the total invoice was settled, representing 32.73% remittance performance from July to August 2019.

Following this pattern of remittance, the Federal Government could also choose to settle about a third of the market invoice for the two months it wants to give Nigerians free electricity, but this will further worsen shortfall in the power sector.

The electricity market already has shortfalls estimated at over N2.4 trillion, which consist of market shortfall of N1.335 trillion caused by DisCos inability to collect adequately and fully remit their collections and tariff shortfall of N1.109 trillion caused by the regulator’s decision not to allow cost-reflective tariffs,

It is doubtful the Federal Government has the capacity to pay for the measure in view of declining crude oil revenue caused by the outbreak of the coronavirus pandemic.

The price drop was complicated by a price war between Saudi Arabia and Russia and with growing external debt, Nigeria’s credit ratings have been downgraded leading to a devaluation of the currency.

Zainab Shamsuna Ahmed, minister of Finance has led efforts to review the 2020 budget and may yet further cut expenditure as earnings plateau.

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