The Nigerian federal government is set to pay approximately N180.8 billion in electricity subsidies for power consumers in Bands B to E, whose tariffs have been frozen since December 2022.
This subsidy program comes in light of the heavy financial impact the Band A tariff is having on industries, with stakeholders and unions raising concerns that the current cost of electricity could drive businesses toward bankruptcy.
Nigeria’s power sector is at a critical juncture, as industrial players and other stakeholders expressed growing frustration over the high electricity tariffs under Band A. These businesses, which are often large power consumers, complain that the cost of energy is unsustainable and threatens the survival of many companies in the country.
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This is more so as inflation continues to rise – shooting operating costs high.
Government’s Subsidy Program
The Nigerian Electricity Regulatory Commission (NERC) introduced a range of measures, including maintaining the frozen tariffs for Bands B to E, to cushion the effect of high energy costs for a significant portion of the population. The tariffs for these bands have remained unchanged since December 2022.
The federal government, by this means, sought to alleviate the financial pressure on lower-tier consumers, following a shift of the highest tariff to consumers and businesses operating under Band A.
NERC’s September 2024 Supplementary Order of the Multi-Year Tariff Order (MYTO), released by the Sanusi Garba-led regulatory body, underscores the need for continued government intervention in the electricity market. The order includes provisions for the disbursement of subsidies to various electricity distribution companies (Discos), ensuring that customers in Bands B to E are shielded from any price hikes.
“In line with the policy direction of the federal government on electricity subsidy, the allowed tariffs for Bands B-E customer categories shall remain frozen at the rates payable since December 2022 subject to further policy direction by the government,” NERC stated.
The federal government, through NERC, has allocated substantial funds for this initiative: Abuja Disco is expected to receive N26.4 billion, Ikeja Disco N23.76 billion, and Ibadan Disco N22.21 billion.
In addition, Enugu Disco will receive N14.61 billion; Port Harcourt will get N13.45 billion; Kaduna will get N13.14 billion; Kano has N12.96 billion; Jos Disco is entitled to a subsidy of N11.68 billion. The smallest allocation in the subsidy round will go to Yola Disco, which is slated to receive N8.06 billion.
NERC Fines DisCos for Overbilling
In line with its plan to reduce energy costs for lower-tier consumers, NERC has taken enforcement actions against the 11 Discos for overbilling customers. The regulator fined these Discos approximately N8.3 billion for their non-compliance with previous directives aimed at capping estimated billing practices. The fines are intended to hold Discos accountable for overcharging consumers who do not have prepaid meters and are subjected to estimated billing systems.
Among the affected Discos, Abuja Disco received the highest fine of N1.69 billion, followed closely by Eko Disco and Ikeja Disco, which were fined N1.41 billion each. Other Discos, such as Jos, Port Harcourt, and Benin, also faced significant penalties for billing violations, with fines ranging from N800 million to over N1 billion.
NERC’s order mandates that the Discos compensate affected customers and publish explanations for service failures on their websites.
NERC has been working to improve transparency and service delivery in the power sector by leveraging technology to monitor electricity supply in real-time. Under this shift, DisCos are now required to report the average daily hours of power supply for each Band A feeder on their websites and provide explanations for any service disruptions lasting more than two consecutive days. Failure to meet the required service levels can result in further penalties and potential downgrading of feeders, as outlined in NERC’s regulations.
Additionally, DisCos are required to maintain rapid response teams to address power outages and ensure efficient communication with customers regarding fault resolution and load management. These teams are tasked with providing timely updates on power restoration efforts and collaborating with the Transmission Company of Nigeria (TCN) to optimize electricity dispatch to respective feeders.
The Electricity Challenges Remain
While NERC’s actions have provided some relief to consumers and imposed accountability on the Discos, the broader challenges facing Nigeria’s power sector remain unresolved. The high cost of electricity for consumers under Band A, coupled with inconsistent supply, continues to threaten the viability of industries across the country.
The Manufacturers Association of Nigeria (MAN) has lamented the shutdown of over 300 companies and the loss of 380,000 jobs since the hike in power tariff in April 2024.
Analysts believe that without significant reforms and investment in infrastructure, the situation could worsen.
One of the core issues is that while the federal government is providing subsidies to ease the burden on lower-tier consumers, industries and large-scale businesses are bearing the brunt of the financial strain. This disparity is creating a situation where smaller consumers benefit from frozen tariffs, but the economic backbone of the country—its industries—faces an uncertain future due to high energy costs.
Moreover, there is a growing consensus that Nigeria’s power sector needs deeper reform, not just in terms of pricing but also in terms of infrastructure development and investment in renewable energy sources.