The federal government’s electricity subsidy obligation surged from N252.76 billion in the last quarter of 2023 to N633.30 billion in the first quarter of 2024, according to a recent report by the Nigerian Electricity Regulatory Commission (NERC). This increase reflects the government’s ongoing commitment to managing the electricity sector amidst evolving economic conditions.
The NERC report highlights that the monthly electricity subsidy in early 2024 averaged N211.10 billion, a notable rise from N84.25 billion in the previous quarter. The rise in subsidy obligations is largely attributed to the government’s policy of harmonizing exchange rates and maintaining end-user tariffs at the rates established in December 2022.
The subsidy obligation of N633.30 billion for Q1 2024 represents 90.57 percent of the total invoice from the Nigerian Bulk Electricity Trading Plc (NBET). This marks a substantial increase of N380.56 billion or 150.56 percent compared to the N252.76 billion incurred in Q4 2023.
The NERC report also noted that the increase in subsidy payments was due to the absence of cost-reflective tariffs, necessitating government intervention to cover the gap between actual costs and allowed tariffs. This subsidy is applied to the generation cost payable by distribution companies (Discos) to NBET, reflecting the Disco’s Remittance Obligation (DRO).
In the first quarter of 2024, the DRO-adjusted invoice from NBET to Discos was N65.96 billion, with Discos making a total remittance of N65.52 billion. This represents a 99.33 per cent remittance performance, a significant improvement from the 69.92 per cent performance in Q4 2023 when the Minimum Remittance Obligation-adjusted invoice was N223.32 billion, and total remittance was N156.40 billion.
In a move to reduce subsidy obligations, the NERC cut off subsidy payments in Band A areas as of April 3, 2024. This adjustment has resulted in tariffs in Band A areas increasing to above N200 per kilowatt-hour from N68.
Overall, the report indicates a positive trend in remittance performance and underscores the federal government’s ongoing efforts to balance subsidy support with sector sustainability.