By Hosea Parah, Abuja

In a bid to support social welfare, ensure economic stability, and prevent political unrest, the Nigerian government has historically provided electricity subsidies. However, this subsidy has become an increasing burden on the government’s finances and has led to inefficiencies in the energy sector. With the current state of government finances, the sustainability of electricity tariff subsidies is being called into question.

According to reports, between 2015 and 2020, the shortfall in allowed tariffs amounted to approximately N2.4 trillion, with an average annual deficit of N200 billion. In 2022 alone, over N600 billion was paid in subsidies, and this figure is projected to skyrocket to at least N1 trillion in 2024.

To address this issue, the Nigeria Electricity Regulatory Commission (NERC) introduced the Multi-Year Tariff Order (MYTO) in 2022, which aimed to gradually phase out subsidies and transition consumers to cost-reflective tariffs. However, the progress made in phasing out subsidies was disrupted when the Federal Government placed a freeze on tariff reviews in July 2023.

One of the key challenges facing the electricity market is the disproportionate benefit of subsidies to high-income consumers. Data shows that areas identified as high-income regions are now benefiting more from subsidies than low-income areas. For example, the subsidy payment to Abuja Disco increased by 1,912% from Q1 to Q3 of 2023, while Eko Disco saw a 1,676% rise in subsidy payment during the same period.

This disparity in subsidy allocation has raised concerns about the intended purpose of the subsidy, which was originally designed to benefit low-income earners. Reports indicate that high-income households consume more electricity than their low-income counterparts, further exacerbating the issue.

Data from the National Bureau of Statistics and NERC reveals that the poorest 20% of non-maximum demand consumers received only a minimal amount of subsidy, while the richest 20% accounted for a significant portion of subsidy payments. This disproportionate allocation not only undermines the purpose of the subsidy but also strains the government’s finances.

Furthermore, the delay and bottlenecks associated with paying subsidies, coupled with the slow cycle of the electricity market, have further complicated the issue. Subsidies are funded from various sources, including the budget appropriation, FGN commitments, World Bank guarantees and loans, and CBN facilities.

As the government grapples with the sustainability of electricity subsidies, experts are urging swift action to prevent the situation from spiraling out of control, similar to the challenges faced with petrol subsidies. With approximately N2 trillion paid in subsidies since 2015 and minimal private sector investment in the Nigerian Electricity Supply Industry, it is evident that alternative applications for the subsidy funds need to be explored.

The convener and Executive Director of PowerUpNigeria, Adetayo Adegbemle, has called attention to the need for a quick decision from the federal government to address the issue and ensure the proper allocation of subsidy funds.

It is clear that the current electricity subsidy system is unsustainable and requires immediate attention to prevent further strain on government finances and ensure the equitable distribution of benefits to those who need it most.