How Electricity subsidy still rises to N1.94tn in 2024 despite FG’s 1% Subsidy

The Federal Government’s electricity subsidy bill surged to ₦1.94 trillion in 2024 — a 220% increase from ₦610 billion in 2023 — despite efforts to reform the tariff structure, including the April hike for Band A customers.

However, less than 1% of the subsidy has been paid, raising concerns about sustainability in the power sector.

The figure represents a 219.67% year-on-year increase, driven by the floating of the naira, removal of petrol subsidies, and persistent macroeconomic challenges, including soaring inflation and foreign exchange volatility.

The Nigerian Electricity Regulatory Commission (NERC), in its 2024 Annual Report, said the Federal Government incurred the ₦1.94tn subsidy to cover the shortfall between the actual cost-reflective tariffs and the lower, government-approved tariffs being charged to electricity consumers.

The report showed that only ₦371.34 million — just 0.019% of the total — was paid by the government.

NERC explained that in the absence of cost-reflective tariffs across all electricity distribution companies (DisCos) for most of 2024, the Federal Government bore 62.59% of the Nigerian Bulk Electricity Trading Plc (NBET) invoices, translating to an average monthly subsidy of ₦161.85 billion.

The subsidy obligation in Q1 2024 alone rose to ₦633.30 billion — a 303% jump from the 2023 quarterly average of ₦157.15 billion, and a staggering 1,699% increase over the 2022 average of ₦35.21 billion.

Though the April 2024 tariff adjustment for Band A customers — who consume about 40% of national energy — resulted in a 39.99% drop in subsidy to ₦380.06 billion in Q2, the Federal Government’s decision to freeze electricity tariffs at July 2024 levels led to renewed increases in subsequent quarters.

The subsidies rose again to ₦464.12 billion in Q3 and ₦471.69 billion in Q4

Despite the freeze on allowed tariffs, NERC noted that cost-reflective tariffs continued to rise due to operational pressures such as inflation, forex volatility, and fuel costs.

The average cost-reflective tariff in 2024 was ₦175.31/kWh, while the average allowed tariff stood at ₦100.27/kWh — creating a gap of ₦75.04 per kilowatt-hour.

Abuja DisCo received the highest at ₦285 billion, followed by Ikeja (₦272bn), Ibadan (₦236bn), Eko (₦231bn), Benin (₦169bn), Enugu (₦161bn), Port Harcourt (₦149bn), Kaduna (₦128bn), Kano (₦124bn), Jos (₦118bn), and Yola (₦67bn). Yola DisCo had the highest cost-reflective tariff at ₦266.64/kWh due to high operational costs, insecurity, and vandalism, making it the most heavily subsidized per unit of power delivered.

To manage growing liabilities, the government in January 2024 transitioned to a new DisCo Remittance Obligation (DRO) framework — replacing the former Minimum Remittance Obligation (MRO) system. Under the DRO, DisCos are expected to pay 100% of what their allowed tariffs can cover, while the government pays the shortfall directly to NBET, which then remits to power generation companies (GenCos).

Despite this framework, the actual remittance has fallen short. NBET reported that out of the ₦1.94tn owed in subsidies for 2024, the government had only settled ₦371.34m.

This has worsened liquidity across the electricity value chain, with GenCos’ unpaid invoices nearing ₦5tn.

Minister of Power, Adebayo Adelabu, has acknowledged the funding shortfall and hinted that Nigerians may need to brace for cost-reflective tariffs to avoid further disruption in electricity supply.

The deepening subsidy debt and underpayment to GenCos continue to raise questions about the financial viability of Nigeria’s electricity market and the long-term feasibility of subsidy-dependent pricing.