The Nigerian Federal Government is set to allocate about N2.36 trillion for electricity subsidy for low-income consumers in 2025. This move comes as the government prepares to implement a cost-reflective tariff to align electricity prices more closely with the actual costs of generation, transmission, and distribution.
Breakdown of the Electricity Subsidy
A recent report from the Nigerian Electricity Regulatory Commission (NERC) revealed that in January 2025 alone, the government spent N178.03 billion on electricity subsidies. This was a 10.1% decrease from the N197.91 billion spent in December 2024. The reduction was attributed to a slight adjustment in key electricity pricing indicators.
NERC noted that in December 2024, the weighted average cost-reflective tariff was N213.85 per kilowatt-hour. However, in January 2025, it dropped to N116.75 per kilowatt-hour. This means that the government is still covering a significant portion of electricity costs for consumers to prevent sudden tariff hikes.
Several factors influenced this subsidy calculation, including:
- Exchange rate fluctuation: The exchange rate was pegged at N1,556 to the dollar.
- Rising inflation: Inflation reached 34.6% in January.
- Changes in power generation capacity: The available electricity supply impacted cost adjustments.
- Gas-to-power pricing: The benchmark gas price for electricity generation remained at $2.42 per million British thermal units (MMBTU).
Who Benefits from the Subsidy?
The subsidy distribution varies across Nigeria’s electricity distribution companies (Discos). The January 2025 allocation was as follows:
- Abuja Disco: N28.38 billion
- Ikeja Disco: N27.2 billion
- Eko Disco: N22.88 billion
- Ibadan Disco: N24.03 billion
- Port Harcourt Disco: N14.59 billion
- Kaduna Disco: N14.13 billion
- Enugu Disco: N15.38 billion
- Benin Disco: N15.75 billion
- Jos Disco: N11.84 billion
- Yobe Disco: N7.77 billion
Challenges with Electricity Subsidy
The government has struggled to keep up with the financial burden of electricity subsidies. In 2024, the total subsidy cost reached N2.37 trillion, but only N450 billion was actually funded, leaving a huge deficit of N1.92 trillion. If a full tariff review had not been implemented in April 2024, the subsidy cost would have climbed to N3.2 trillion, which is 11.64% of the total federal budget.
For 2025, the government estimates that the tariff shortfall will be N2.36 trillion, with no clear source of funding. This raises concerns about the financial sustainability of the power sector.
Government’s Long-Term Plan
The Federal Government is working towards a market-driven electricity sector, where consumers pay for the true cost of electricity. At an energy summit in Tanzania, officials announced plans for an annual $600 million electricity subsidy from 2025 to 2027. The goal is to gradually phase out subsidies while addressing issues like the lack of electricity meters and financial instability in the sector.
Under this plan, subsidies may be structured differently, such as:
- A fixed monthly subsidy for each consumer
- A subsidy on the first 50 kilowatt-hours of electricity used per month
By 2027, the government hopes to fully transition to cost-reflective tariffs, with a special social tariff in place to protect low-income and vulnerable consumers.
Public Concerns and Resistance
The planned removal of electricity subsidies is a controversial topic. Many consumers argue that electricity tariffs should not increase unless power supply improves. The President of the Nigeria Consumer Protection Network, Kunle Kola Olubiyo, emphasized that Nigeria’s power generation has stagnated since reaching 5,600 megawatts in 2013, making tariff hikes an ineffective solution to the power crisis.
Nigeria is still struggling to strike a balance between customer affordability and the power industry’s financial sustainability as it transitions to cost-reflective rates.
