Power Reforms: Can Nigeria Remove Electricity Subsidy without More Burden on Consumers?

As the Federal Government moves to phase out electricity subsidies by 2027 and adopt fully cost-reflective tariffs, there are concerns about the potential impact on Nigerian consumers who are already grappling with rising cost of living.

Recently, the Minister of Power, Joseph Tegbe, spoke at a media briefing in Lagos, where he announced that the Federal Government intends to end electricity subsidy payments starting from 2027.

He framed it as a necessary step to tame what he called a mounting fiscal liability, adding that the administration’s priority was to improve power supply, achieve universal metering and ensure that consumers pay only for the electricity they consume.

The minister, who started by declaring that there would be no immediate tariff hike, contrary to what had been reported recently, stated that the subsidy would be removed gradually and consumers would not lose access to electricity services.

He cited mounting debts in the power sector that the government is grappling with, adding that the subsidy removal is part of efforts to ensure that it doesn’t pile up again in future.

“I promise you, next year, by God’s grace, we will put a stop to this so-called subsidy in the power sector. Mr President, we will not deprive Nigeria of anything. We’ll make sure Nigerian consumers continue to have power and improve power services,” Tegbe stated.

The move aligns with recommendations by the International Monetary Fund for Nigeria to gradually remove electricity subsidies.

The minister’s announcement comes amid ongoing efforts to clear legacy debts in the sector. President Tinubu had in April approved a ₦3.3 trillion payment plan to settle outstanding debts under the Presidential Power Sector Financial Reforms Programme.

In January, the government issued a ₦501 billion inaugural bond under the Presidential Power Sector Debt Reduction Programme. Recently, the president also approved a ₦4 trillion bond programme for debt settlement. 

Tegbe argued that the mounting debt is one of the major obstacles to stable power supply and investment, hence the need for a measure to stop it from accumulating and place the electricity market on a financially sustainable footing.

According to quarterly reports by the Nigerian Electricity Regulatory Commission (NERC), the Federal Government incurred over ₦3 trillion as electricity subsidy obligation in the last two years.

For decades, Nigeria’s electricity sector has been trapped in a vicious cycle where the government spends trillions of naira on subsidies to keep tariffs low, yet the national grid remains unreliable, generating barely 5,000 megawatts for a population about 230 million despite an installed capacity of over 13,000 megawatts.

While government officials argue that subsidy removal is necessary to rescue the country’s financially distressed power sector, consumers fear that another increase in tariffs could deepen the cost-of-living crisis already fuelled by inflation, rising food prices and high transportation costs.

The critical question is no longer whether reforms are necessary, but whether Nigeria can implement them without transferring even greater hardship to households and businesses.

The Fiscal Reality: Why Government Wants End of Electricity Subsidy

Nigeria’s electricity industry has struggled with a persistent liquidity crisis since the privatisation of the sector in 2013.

On one hand lies a financial burden created by the accumulation of unpaid legacy debts owed to electricity generation companies (GenCos) and gas suppliers and on the other is the electricity subsidy payments, which the government has described as unsustainable.

For more than a decade, the Nigerian Electricity Supply Industry (NESI) has operated with a persistent funding gap. Electricity distribution companies (DisCos), which serve as the revenue collection point in the value chain, have struggled to recover enough money from customers due to poor collection efficiency, energy theft, inadequate metering and technical losses. 

 The NERC reports have continued to highlight persistent revenue shortfalls recorded by the DisCos. A recent Commercial Performance Factsheet released by NERC showed that the combined shortfall between what was billed and what was actually collected by DisCos in May 2026 amounted to ₦44.72 billion. The DisCos received ₦328.95 billion worth of energy in May, but billed ₦252.87 billion, and collected ₦208.15 billion in revenue.

As a result of the shortfalls, the revenue remitted through the market has consistently fallen short of the actual cost of generating and delivering electricity. Pinnacle Daily had earlier reported that DisCos recorded approximately ₦1.6 trillion in revenue shortfalls in three years, highlighting the persistent struggle of NESI to achieve financial sustainability.

The losses have left the Nigerian Bulk Electricity Trading Plc (NBET), the intermediary responsible for purchasing electricity from GenCos and selling it to DisCos, unable to fully settle invoices submitted by generation companies. Consequently, billions of naira in unpaid invoices accumulated over the years, creating what the industry now describes as legacy debts.

The impact has rippled across the entire electricity value chain. GenCos, deprived of full payment for electricity already supplied to the national grid, have struggled to meet their financial obligations to gas producers—the suppliers of natural gas that fuels more than 70 per cent of Nigeria’s thermal power plants (according to the Nigerian Independent System Operators). Gas companies, facing mounting receivables and uncertain cash flows, have become increasingly reluctant to expand gas supply or invest in new infrastructure without stronger payment assurances.

This cycle of indebtedness has constrained electricity generation. Several GenCos have at different times warned that inadequate payments have left them unable to maintain turbines, procure spare parts, service loans or finance routine maintenance. Some generating units have operated below capacity, while others have occasionally reduced output because of gas supply constraints linked to unpaid invoices.

The liquidity squeeze extends beyond power generation. Industry stakeholders have observed that transmission infrastructure upgrades have slowed because market participants lack the financial strength to invest, while distribution companies continue to struggle with ageing networks, overloaded feeders and inadequate metering. The result is a fragile electricity market in which every segment depends on payments from another that is itself financially distressed.

The Federal Government has repeatedly intervened through subsidies, payment assurance facilities and other financial support to prevent a complete collapse of the market. While these interventions have provided temporary relief, industry experts argue that they have not resolved the underlying structural imbalance between the true cost of supplying electricity and the revenue collected from consumers.

This unresolved debt overhang is one of the strongest arguments advanced by advocates of electricity subsidy reform. They contend that without a financially viable market capable of paying GenCos and gas suppliers on time, investments in new generation capacity, transmission expansion and distribution improvements will remain inadequate.

Talking about investment in the power sector, Special Adviser to the President on Power Infrastructure, Sadiq Wanka, recently stated that the country needs to increase annual investment in the power sector to $12 billion through 2045 to achieve reliable electricity. He observed that available data show that only $1 billion is currently being spent on the electricity value chain, leaving an annual power investment deficit of about $11 billion.

Why Investors Insist on Cost-Reflective Tariffs Before Funding the Power Sector

One of the arguments advanced by proponents of removing electricity subsidies is that Nigeria cannot attract the billions of dollars needed to modernise its ageing power infrastructure without a pricing system that allows investors to recover their costs and earn reasonable returns.

Wanka said there is a need for significant investments in the transmission lines for expansion to evacuate more power from generating plants; distribution companies require modern transformers and substations to reduce technical losses, while millions of customers need to be metered to eliminate estimated billing. 

Industry analysts estimate that these upgrades will require sustained investment running into several billions of dollars over the next decade. However, for international lenders and development finance institutions, they evaluate such projects primarily on one question: Can the investment generate predictable cash flows that will repay loans and provide an acceptable return? 

For investors, the uncertainty of recovering the funds invested increases financial risk. Banks and other financial institutions, they say, have become reluctant to finance long-term infrastructure when future revenue streams cannot be accurately projected. They perceive cost-reflective pricing as the only guarantee for a bankable electricity market.

Consumer Reality: Hardship in the Shadows of Reform

Yet for Nigerians enduring erratic power supply, the narrative of fiscal prudence rings hollow. The 2024 tariff hike for Band A consumers was already seen as exploitative and a threat to the growth of local businesses. NERC had approved a tariff hike of over 300 per cent for Band A customers, which constituted about 15 per cent of the total electricity customers across the country at the time. While they were promised a maximum of 20 hours of electricity supply daily, Customers in other bands were placed on 16 hours (Band B), 12 hours (Band C), 8 hours (Band D), and 4 hours (Band E).

Many Band A customers have reported not receiving up to 20 hours. Some lamented spending days without power supply and often called out the distribution companies for making them spend more on electricity bills without commensurate supply.  

Consumer advocates argue that simply removing subsidies without first addressing inefficiencies, improving metering, reducing technical and commercial losses, and strengthening service delivery risks shifting the burden of decades of sectoral inefficiency onto electricity consumers.

Financial Coordinator of All Electricity Consumers  Protection Forum, Samuel Adeola Ilori, said the authorities are always interested in tariff increase but fail to address fundamental issues such as improving power generation, transmission and distribution capacity and activities at DisCo level that affect consumers.

Ilori, who appeared on Arise News Morning Show programme, dismissed claims that the government will remove electricity subsidy without increasing tariff. He said there are Band A customers who currently do not have up to six hours of electricity per day yet pay high tariffs.

On metering, the consumer advocate lamented that despite the clamour for electricity operators to close the gap, over 5 million customers are still unmetered across the country.

He also dismissed claims that prepaid meters are installed free, insisting that customers are made to pay for them through tariff charges by DisCos. 

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Ilori warned that before the government removes electricity subsidy, it should increase the capacity of DisCos’ energy offtake and meter all customers to pay for what they consume and not be subjected to estimated billing.

He said consumers in communities are usually made to pay for power equipment such as transformers, cables and poles among others, while DisCos still charge them for installation.

“I challenge DisCos to show me their books where they have bought transformers to fix in any community so far.

“Anything they want to do, make sure that Nigerians enjoy what they pay for,” he further stated.

Human rights lawyer, Femi Falana (SAN), rejected the planned increase in electricity tariff, saying the people should not be made to bear the burden of what he described as years of policy failures and inefficiency in the power sector.

Speaking to newsmen recently in Ilawe-Ekiti, Falana said the government should first fulfil its obligations by ensuring stable power supply before increasing tariff or removing subsidy. 

He maintained that Nigerians deserve reliable power supply, not high cost for poor service. 

The senior lawyer recalled that President Tinubu had promised during his election campaign to deliver a reliable power supply and should focus on fulfilling that promise instead of pushing to increase electricity charges.

“The government should provide an uninterrupted supply of electricity. That was a promise made by President Bola Tinubu when he was a candidate,” he stated.

While commenting on the power sector privatization exercise, Falana charged the government to hold private investors who took over accountable if it feels they have failed to deliver reliable power supply, not making consumers suffer through imposition of high tariff in the guise of removing subsidy.

“The government wants to withdraw completely. Having sold our electricity companies, the government cannot be allowed to leave Nigerians in the lurch. Those who bought the electricity companies are friends of the government.

“The government should either nationalise all the electricity companies and ensure that they operate optimally, but you cannot punish Nigerians for the carelessness, irresponsibility, or connivance of the government.”

According to him, the government should prioritise reforms that ensure stable electricity supply across the country rather than imposing additional financial burden on consumers.

Former managing director of the Transmission Company of Nigeria (TCN), Usman Mohammed, stated that the country’s electricity challenges have persisted because the Nigerian Government has made mistakes and continued in the same direction.

Speaking in an interview on Rufai Oseni’s Nevon Podcast, Mohammed said the reason the power sector privatization exercise failed was that the whole process was rushed and the assets were handed over to incompetent people to manage.

On his part, former chairman/CEO of NERC, Dr Sam Amadi, painted a picture of three scenarios that can make it possible for the government to remove electricity subsidy without immediately increasing tariff.

Speaking in an interview on News Central, Amadi said one of them is by increasing efficiency in the transmission, and distribution segments of the market as subsidies arise from shortfalls, either not recovered or fully paid by distributors.

Secondly, he said there would be a need for dramatic capacity growth in power generation and transmission to reduce the unit cost.

The former NERC boss further stated that the tariff could be less if there is more regulatory efficiency in controlling the finances of the operators.

He argued that subsidy is not really a bad economic policy if efficiently managed, but in Nigeria, operators remain inefficient while the government becomes the loser.

Protecting Vulnerable Nigerians

There are calls for implementation of safety nets to protect vulnerable consumers if the government goes ahead with the removal of electricity subsidies.

Amadi urged the government to explore mechanisms like the Power Consumer Assistance Fund (PCAF) to protect low-income households and lifeline consumers, who may not be able to pay the new tariff.

While noting that there is a clause for PCAF both in the old and new electricity laws, he said the methodology for implementing it has not been set.

“Tbe problem is that we we don’t even have the methodology or system that is well established to decide how to support those consumers who need to have power, basic existence and improve their productivity.”

He stressed that people can only be empowered to escape poverty when they have access to reasonable power supply.

He also joined others in calling for acceleration of mass metering initiatives to address the metering gap, stressing that universal prepaid metering is essential before full subsidy removal to prevent arbitrary estimated billing.

Enforcing Utility Accountability

Other measures that should be addressed, according to Ilori, is enforcing tighter regulatory oversight by NERC such as the need for strict penalties on distribution companies when supply hours drop below their service commitments.

The consumer advocate argued that none of the policies put in place by the regulator in recent years have worked in favour of consumers. He cited cases of areas under Band A where customers do not receive the required number of hours of supply yet DisCos are not being mandated to downgrade them to lower bands or sanctioned.

While the authorities argue that tariff review and removal of subsidy are critical to ensuring financial viability of the power sector, industry stakeholders maintain that  the sector’s sustainability depends on building consumer trust through reliable service delivery, transparent metering, and targeted social protections before dropping the support.