Electricity consumers in Nigeria, especially those connected to Band A feeders, could soon be facing yet another potential increase in tariffs due to the escalating electricity subsidy deficit in the country.
Sources indicate that the government’s electricity subsidy shortfall has risen to N181.63 billion in September, a significant jump from N102.30 billion in May.
In April, the Nigerian Electricity Regulatory Commission (NERC) had initially disclosed the elimination of subsidies for Band A feeders, which cater to consumers receiving a minimum of 20 hours of electricity daily.
During that period, the subsidy stood at N140.7 billion, leading to the government’s decision to hike tariffs for Band A consumers to N225 per kilowatt-hour (kWh).
Following the decision, there was a significant backlash from various sectors in Nigeria, including labor unions, educational institutions, and healthcare facilities, as their electricity expenses tripled following the removal of subsidies.
In response to the public uproar, the government reduced the tariff to N206.80/kWh in May when the subsidy decreased to N102.30 billion. However, as of early July, with the subsidy increasing once more to N158 billion, the tariff saw a slight uptick to N209/kWh.
Subsequently, the subsidy has continued its upward trend, reaching N163.87 billion in July, N173.88 billion in August, and eventually hitting N181.63 billion in September.
There are now indications that another tariff increase might be imminent, as the Multi-Year Tariff Order (MYTO) scheduled for October could potentially reflect the escalating costs of power generation unless there are improvements in the current situation.
The Nigerian Electricity Regulatory Commission (NERC) pointed to the persistent foreign exchange challenges in the country as a key contributor to the increasing electricity subsidies. The exchange rate for the dollar, which stood at N1,494.1 in July, climbed to N1,601.5 by September.
Alongside with inflation, these elements notably impact the expenses associated with power generation, as highlighted by the regulatory body.
NERC has indicated that forthcoming tariff adjustments will take into account inflation rates, the naira-dollar exchange rate, gas prices, and the country’s generation capacity.
In its recent directives, the regulator has incorporated the exchange rate of N1,601.50 per dollar for September and factored in Nigeria’s inflation rate of 33.40% in July 2024.
Recent reports suggest that electricity distribution companies (Discos) are advocating for the elimination of subsidies across all customer categories, not limited to Band A.
Some Discos are declining to procure power from the grid, citing non-cost-reflective tariffs as the primary concern.
