Despite reforms aimed at improving the commercial viability of the Nigerian electricity market, the sector continues to reel under the burden of subsidy obligations incurred by the federal government.
Pinnacle Daily’s analysis of the Nigerian Electricity Regulatory Commission’s quarterly reports reveals that the federal government has incurred an electricity subsidy obligation of approximately ₦3 trillion in the last 18 months.
The government has been undertaking to fund the gap between the cost-reflective tariff as computed by the Commission and what DisCos charge electricity consumers.
In its annual report for 2024, NERC indicated that a total of ₦1.941 trillion was incurred as subsidy obligation across all electricity distribution companies (DisCos) in 2024. The figure constitutes 62.59 per cent of the total invoices issued by the Nigeria Bulk Electricity Trading Company (NBET) in the year. The report shows that the electricity subsidy was ₦633.30 billion in Q1 2024, representing a 303 percent increase compared to the average quarterly subsidy obligation of ₦157.15 billion in 2023. The Commission attributed the increase to the federal government’s directive to freeze all customer tariffs at the December 2022 approved rates, “despite the increase in the cost-reflective tariffs arising from the major increase in FX rates.”
It is worth recalling that on April 3, 2024, NERC approved a tariff adjustment for Band A consumers (those receiving at least 20 hours of power per day) from ₦66/kWh to ₦225/kWh. The action was part of efforts to lower the government’s subsidy exposure, which the Commission said might decrease by ₦1.14 trillion over the year. The Commission said the increase in tariff paid by Band A consumers (which make up only around 15 per cent of all electricity consumers), led to a 40 per cent decrease in the FG’s subsidy obligations between Q1 and Q2 2024. The national electricity regulator later issued a supplementary tariff order in May 2024, indicating a downward review of the Band A tariff rate to ₦206.80/kWh.
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In the second quarter of 2024, the subsidy obligation declined to ₦380.06 billion, indicating a 39.99 percent drop from the first quarter. However, this was reversed by the increase in electricity subsidy obligations to ₦464.12 billion (₦84.06 billion surge) in Q3. It further rose by ₦91.63 billion to ₦417.69 billion in Q4 2024. It rose to ₦536.40 billion in Q1 2025, reflecting a ₦118.71 billion (28.42 per cent) increase from Q4 2024.
The latest market performance report for Q2 2025, released by the NERC recently, revealed that the subsidy dropped by ₦22.04 billion (4.11 per cent) to ₦514 billion in Q2 2025. Despite the decline from the previous quarter, it still accounted for 59.60 per cent of total generation cost across the DisCos. This represents a slight increase of 0.44 percentage points when compared to Q1 2025, when subsidies accounted for 59.16 per cent of total Genco invoices.
The report revealed that consumers in major cities like Lagos and Abuja are the primary beneficiaries of the subsidy scheme. Lagos, according to the report, accounted for almost half of the subsidy claim (₦248 billion), while Abuja recorded ₦133 billion.
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NERC said the subsidy obligation is due to the continued absence of cost-reflective tariffs, forcing the government to pay the difference between the actual cost of generation and what consumers are charged.
The surge has also been linked to the floating of the naira and removal of fuel subsidies by the President Bola Tinubu’s administration, which contributed to heightened inflation.
The rising subsidy obligation comes at a time when power generation companies continue to lament the debt owed by the Federal Government, which amounts to ₦4 trillion. While acknowledging the debt earlier this year, the Minister of Power, Adebayo Adelabu, said out of the ₦4 trillion owed to GenCos, ₦2 trillion is classified as legacy debt, while ₦1.9 trillion is for the electricity subsidy.
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Analysts have warned that the debt has created a significant financial crisis for GenCos, which consequently poses a serious threat to the sustainability of the power sector.
Energy analyst Bode Fadipe said the massive debt overhang discourages investment in the sector, which is needed to boost the level of power supply in the country.
Executive Director of PowerUp Nigeria, Mr Adetayo Adegbemle, called on the government to take necessary steps towards clearing the debt, stressing that it is a major obstacle to the development of the power sector.
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Meanwhile, the Federal Government has approved a plan to clear the ₦4 trillion debt. The plan, which was sealed during a meeting in Abuja between the Minister of Finance and Coordinating Minister of the Economy, Wale Edun; the Minister of Power; and the President’s Special Adviser on Energy, Olu Verheijen, alongside top executives of GenCos, takes a structured approach to clear verified arrears through the issuance of government-backed bonds.
The Presidential Power Sector Debt Reduction Plan, approved by President Tinubu and the Federal Executive Council (FEC), is deemed to settle verified arrears owed to generation companies and gas suppliers.
While the plan is seen as a “game-changer”, restoring the financial health of power companies, enabling new investments in infrastructure and improving electricity supply, there are concerns about the implementation to achieve the desired results.
Victor Ezeja is a passionate journalist, scholar and analyst of socioeconomic issues in Nigeria and Africa. He is skilled in energy reporting, business and economy, and holds a master's degree in mass communication.
