The Nigerian Electricity Regulatory Commission (NERC) has reported that the Federal Government’s spending on electricity subsidy has soared to N2.8tn, triggering indications that power distribution companies (Discos) might receive consideration for a tariff review. Previous tariff hikes by Discos have reportedly saved the government from paying an additional N1tn in annual subsidies to power firms.
The NERC report highlights the effectiveness of tariff reviews in reducing the subsidy burden. Between January 2020 and January 2023, tariff rates rose from 55% to 94% of cost recovery. The Service-Based Tariff played a crucial role in transitioning to cost-reflective levels and curbing subsidy payments.
However, recent plans for a tariff hike announced by Discos faced strong opposition from power consumers. Many argued that the government should continue subsidizing electricity, considering the removal of subsidies on Premium Motor Spirit (petrol) in May. Critics of the tariff review questioned whether the Discos were delivering on their promised services and implementing capital projects.
Energy economists and stakeholders stressed the importance of addressing energy issues holistically, recognizing the interconnectedness of various energy sources. They urged the government to carefully consider consumers’ needs and the quality of electricity supply before implementing any tariff changes.
Opinion: Striking the right balance between subsidy reduction and ensuring affordable electricity for all remains a challenging task for the Nigerian government. While tariff reviews have demonstrated progress in reducing subsidies, it is crucial to evaluate the impact on consumers and the actual delivery of improved services by the Discos. A transparent and well-monitored approach that takes into account both consumer interests and the financial sustainability of the power sector is vital to achieving a more robust and accessible electricity system in Nigeria.