The electricity subsidy obligation of the federal government rose from N252.76 billion in the last quarter of 2023 to N633.30 billion in Q1 of 2024, a report by the Nigerian Electricity Regulatory Commission (NERC) has revealed.
The NERC said the government’s electricity subsidy reached N211.10 billion per month in the first three months of 2024, from N84.25 billion in Q4 of 2023.
According to NERC, the increase was attributed largely to government’s policy to harmonise the exchange rates while also issuing a policy directive that end-user customer tariffs remain at the rates that came into effect in December 2022.
“Due to the absence of cost-reflective tariffs across all distribution companies, the government incurred a subsidy obligation of N633.30 billion (90.57 per cent of total Nigerian Bulk Electricity Trading Plc invoice) in Q1 2024 (average of N211.10 billion per month). Across 2024/Q1, this represents an increase of N380.56 billion (150.56 per cent) compared to the N252.76 billion (average of N84.25 billion per month) incurred in Q4 2023,” the regulator stated.
The absence of cost-reflective tariffs was said to have caused the federal government to undertake to cover the resultant gap between the cost-reflective and allowed tariff in the form of tariff subsidies.
For ease of administration, the subsidy is only applied to the generation cost payable by Discos to NBET at source in the form of Disco’s Remittance Obligation.
The DRO, it was learnt, represents the total Genco invoice that is billed to the Discos by NBET based on what the allowed Disco tariffs can cover.
In the first three months of the year, the DRO-adjusted invoice from NBET to the Discos was said to be N65.96 billion while the total remittance made was N65.52 billion, which translates to a 99.33 per cent remittance performance.
“Comparatively, in 2023/Q4, the Minimum Remittance Obligation-adjusted invoice from NBET to Discos was N223.32 billion and the total remittance was N156.40 billion, which translated to a 69.92 per cent remittance performance. This means that the remittance performance of Discos to NBET increased by 29.41 points percentage in 2024/Q1 compared to 2023/Q4,” the NERC said.
Recall that the NERC had on April 3, 2024 cut off subsidy payment in areas categorised as Band A, in an attempt to reduce subsidy obligations. This has since raised the tariff in Band A to above N200 per kilowatt-hour from N68.
It was gathered that the electricity claim for April was N140 billion; it was N102.30 billion in May and N158.53 billion in June, a reflection of the Band A subsidy removal. However, it is higher than the N84 billion recorded monthly in Q4 2023.
The recent removal of NERC from NBET power purchase agreement between the Discos and Gencos, affords the two parties the chance to transact businesses without a middleman.
Meanwhile, the International Monetary Fund (IMF) has warned the Nigerian government to remove what it called implicit energy subsidies.
In a recent report, the IMF told Nigeria that the subsidies would gulp three per cent of the nation’s gross domestic product in 2024, as against one per cent in the year before.
“As Nigerians agitate for the reversal of the Band A tariff to N68/kWh, IMF submitted, The tariff adjustment will help reduce expenditure on subsidies by 0.1 per cent of gross domestic product while continuing to provide relief to the poor, particularly in rural areas,” IMF said
