Nigeria reduces electricity subsidies by 35% following an increase in tariffs

Nigeria has seen a 35% decrease in electricity subsidies after a tariff hike was introduced last year for certain users, Power Minister Adebayo Adelabu stated on Thursday, alleviating some strain on public finances in Africa’s most populous country.

Nigeria’s power sector faces significant challenges, including a struggling grid, gas shortages, substantial debt, and vandalism, resulting in a dependence on costly generators for numerous users.

The nation was allocating almost 200 billion naira ($125.01 million) each month for electricity subsidies due to the unviable nature of current tariffs.

Last year, the government removed subsidies for the 15% of customers identified as heavier users, which includes households and businesses that consume significant amounts of electricity.

Adelabu stated during a press briefing in Abuja that this targeted tariff adjustment has produced notable outcomes, with “the market generating an additional 700 billion naira in revenue, indicating a 70% increase”.

This has eased the significant financial pressure on public finances, enhanced generation, and lowered the government’s tariff shortfall from 3 trillion naira to 1.9 trillion naira.

However, the power sector continues to encounter significant challenges that are deeply ingrained. The nation boasts an installed capacity of 13,000 megawatts; however, it usually generates merely a third of that amount, intensifying dependence on expensive alternatives.

This situation is exacerbated by state-controlled power tariffs that have traditionally been insufficient for distribution companies to meet their costs and compensate generating companies, resulting in escalating debts within the sector.

The debt owed to power generating companies has escalated to 4 trillion naira ($2.50 billion), leading to warnings of potential plant shutdowns.

Adelabu stated that there are plans in progress to alleviate the debt burden, with the government aiming to cover half of the debt this year via budgetary allocations and promissory notes that companies can discount as necessary.