The federal government spent a staggering ₦1.94 trillion on electricity subsidy in 2024, according to the Nigerian Electricity Regulatory Commission (NERC)’s latest annual report released on Monday.
This amount represents 62.59 percent of the total invoice issued by the Nigerian Bulk Electricity Trading (NBET) Plc and has reignited debates about the sustainability of subsidising power in a country already battling fiscal pressures.
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The figure, which translates to an average monthly subsidy of ₦161.85 billion, is the highest ever recorded, highlighting the widening gap between actual electricity generation costs and the frozen tariffs paid by consumers.
EKO HOT BLOG explores the all-important question of whether the current electricity subsidy regime is sustainable.
A policy of price freezes and mounting costs
At the heart of the ballooning subsidy is the federal government’s decision to freeze electricity tariffs at December 2022 rates. While this may have been politically popular, it proved fiscally devastating, especially as the naira depreciated sharply and energy input costs rose throughout 2023 and 2024.
According to the NERC report, the first quarter of 2024 alone saw ₦633.3 billion in subsidies, a jump of 303 percent from the 2023 quarterly average of ₦157.15 billion and a whopping 1,699 percent increase compared to ₦35.21 billion in 2022.
The massive rise was driven by foreign exchange pressures, as many generation inputs are dollar-denominated. With the naira weakening significantly during this period, the cost-reflective tariffs, the price consumers should ideally pay, soared.
However, rather than adjust tariffs across the board, the federal government approved a selective increase only for Band A customers (those receiving at least 20 hours of power daily), hiking the rate to ₦225/kWh in April 2024, before slightly reducing it to ₦206.80/kWh in May. This move reduced the subsidy burden in the second quarter to ₦380.06 billion, a 39.99 percent drop from Q1. Still, the reprieve was short-lived.
In July 2024, a new presidential directive froze all customer tariffs again, erasing earlier gains. As a result, the subsidy obligation increased by ₦84.06 billion (+22.12%) in Q3 and ₦91.63 billion (+24.11%) in Q4.
Despite static consumer prices, the cost-reflective tariffs kept rising due to persistent macroeconomic instability, forcing the government to shoulder the growing difference.
Weak reform efforts
To improve subsidy administration, NERC introduced the DisCo Remittance Obligation (DRO) framework in January 2024, replacing the previous Minimum Remittance Obligation (MRO).
The DRO system pegs each electricity distribution company’s (DisCo’s) obligation to what their allowed tariffs can cover. In essence, DisCos are now required to remit 100% of the cost their tariffs support, while the government covers the shortfall at source.
This approach was designed to prevent the accumulation of debts on DisCo balance sheets, a problem that previously hindered their ability to attract financing for infrastructure upgrades and metering programs.
While the shift improves transparency, it does not address the underlying issue: tariffs remain far below cost, and someone, in this case, the federal government, must pay the difference.
Can Nigeria keep paying?
The NERC report makes clear that electricity subsidy is growing at a pace Nigeria can ill afford. With subsidy costs rising from ₦35 billion quarterly average in 2022 to N633.30 billion in Q1 2024, the system is teetering under its own weight.
Yet, the alternative — hiking tariffs across the board — risks public backlash, especially in a context where power supply remains inconsistent and metering is incomplete.
While Band A customers have seen some movement toward market-reflective pricing, the bulk of consumers remain shielded from true costs, leaving the government to plug the hole. This creates a paradox: Nigeria is spending more to subsidise power, yet most citizens still experience poor supply.
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Unless bold reforms are matched by improved service delivery and a gradual but clear roadmap to cost-reflective pricing, especially with targeted support for vulnerable groups, the electricity subsidy will continue to drain public finances without delivering value to citizens.
Philip Ibitoye is a Special Correspondent with EKO HOT BLOG. Click here to find daily analysis and critical insight on trending issues in Lagos and other parts of Nigeria.
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