NERC Reports Show That Electricity Subsidy Climbs by 275% In Q2 2023

The latest report released by the Nigerian Electricity Regulatory Commission (NERC) shows that the Federal Government of Nigeria paid ₦135.23bn for electricity subsidy in Q2 2023, and this showed that the figure increased by 275% from the ₦36.02 billion paid in Q1 2023.

The Commission stated that the reason for the subsidy was the absence of cost-reflective tariffs across all Distribution Companies, noting that the government’s move to unify exchange rates led to the devaluation of the naira, which led to the increase in cost.

In a situation where there is an absence of cost-reflective tariffs, the government undertakes to cover the difference between the cost-relative and the permitted tariff in the form of tariff shortfall funding.

At the end of July 2023, the Nigerian Electricity Regulatory Commission said eleven distribution companies had submitted an application for rate review with the commission. 

The call for the rate review was to bring reform to macroeconomic parameters and other factors affecting the quality of operations, service, and sustainability of the companies.

The distribution companies said that the proposed tariff was due to the devaluation of the naira, which caused a change in costs.

Under the MYTO 2022 guidelines, the previously set exchange rate of N441/1 dollar may now be revised to approximately N750/1 dollar. In effect, current realities necessitate an increase in tariffs, the report shows.

One of the main problems with the power sector is its uncommercial tariff plan, and this has been a consistent issue between the cost of producing and supplying electricity and the tariff charged to the customer. On the other hand, billing and cash collection have been inefficient due to poor metering.

The Multi-Year Tariff Order (MYTO) was expected to set electricity tariffs for consumers over 15 years, from 2008 to 2023.

There were to be minor reviews of the industry’s pricing structure twice a year (announced on 1 December and 1 June) and major reviews every five years, Nairametrics reported.

Minor reviews can only be effective considering four variables, which are: gas prices, the rate of inflation, foreign exchange rates, and actual daily generation capacity.

A new tariff structure was introduced in June 2012 and was the primary cause of the hike in tariffs.