Electricity subsidy rises to N1.6trn as DisCos raise tariffs

The Nigerian Electricity Regulatory Commission (NERC) has approved new electricity tariffs, which will come into effect for the 11 distribution companies in Nigeria from January 2024.

However, customers will not be immediately impacted by these new tariffs as the federal government is set to subsidize the increased tariffs by N1.6 trillion this year.

According to the NERC chairman, Sanusi Garba, the government will continue to subsidize electricity to alleviate the financial burden on Nigerians and to address the economic challenges facing the country.

The Commission also approved a monthly tariff review of the DisCos, based on changes in external factors such as inflation rates, Naira/USS exchange rates, and gas-to-power prices.

It is noteworthy that before this development, the Multi-Year Tariff Order (MYTO) allowed for minor tariff reviews bi-annually, while major tariff reviews were scheduled every five years.

“Government has decided for now, arising from the cost of living crisis and so many others, to in the meantime continue to subsidise electricity.

“In the new tariff order just published by the commission, you will discover that tariff is not going up but you will see what the Electricity Distribution Companies (DisCos) should be charging.

“You will also see in the tariff order the amount of subsidy the government will be providing to cover the gap between what they will charge and what they are allowed to charge,” he said.

The new electricity tariff has been a topic of discussion lately, with many people wondering what it entails.

According to an expert, the tariff is based on government policy and specifies what the Distribution Companies (DisCos) are allowed to charge to remain in service.

The Nigerian Electricity Regulatory Commission (NERC) has included provisions in the tariff to ensure that DisCos pay their obligations.

A breakdown of the approved tariffs shows that the cost-reflective tariff for Abuja Electricity Distribution Company is N120.88 per kilowatt hour (kwh). However, NERC has allowed a tariff of N63.24/kwh, indicating a shortfall of N58.12/kwh, which is subsidized by the federal government.

In line with the federal government’s policy on electricity subsidy, the commission has frozen the allowed tariffs for all customers at the rates payable since December 2022. This means that customers will not experience any increase in the tariffs they pay.

The estimated subsidy benefit for customers under AEDC franchise in 2024 is approximately N233.26bn, which translates to N19.44 billion monthly.

This policy will go a long way in ensuring that customers are not overburdened with high electricity bills.

“The allowed tariff is with effect from 1″ January 2024 and shall remain in force, subject to further policy direction of the FGN,” the commission stated.

For Ikeja Electric, the Cost reflective tariff is N128.18 While the approved tariff is N56.6 leaving a shortfall of N53.5/kwh.

The Electricity Act that was signed in 2023 allows states to make laws and take charge of providing electricity in their franchise areas.

The estimated subsidy benefit for customers under Ikeja Electric franchise in 2024 is approximately N238.201 billion, while for Ibadan DisCo franchise, it’s approximately N199.841 billion.

The commission is committed to working with the states to utilize public utilities for the intended purpose and to provide services to Nigerians. The commission has identified a challenge with finances to meter customers, which has adversely impacted the rate of metering.