Power subsidies hit N1.91 trillion in 11 months

According to the latest report of the Nigerian Electricity Regulatory Authority, the monthly electricity subsidy expenditure of the federal government has reached N1.91 trillion in the first 11 months of 2024.

In addition, it is said that the total turnover of distribution companies in the first nine months of 2024 was N1.23 trillion, exceeding the total turnover of N1.08 trillion in 2023.

According to the analysis of the data of the monthly supplementary order No. Sunday published on the website of the power sector regulator, despite the cancellation of subsidies for Class A users, the electricity subsidy has increased quarter by quarter throughout the year.

The amount incurred between January and November 2024 increased by 204.15%, or N1.283 trillion, from N628.61 billion in 2023.

The breakdown shows that in the first three months of this year, N633.3 billion was incurred as electricity tariff subsidy until 2024. However, the figure dropped to N380 billion in the second quarter.

In the third quarter (July, August and September), the subsidy amount increased by 36.46% to N518.55 billion. The subsidy cost in October and November stood at N380.06 billion despite several incidents of national grid collapse.

PidomNigeria recalls that NERC suspended subsidy payments for Category A areas on April 3 to reduce subsidy obligations. As a result, the tariff for Band A increased from N68 per kWh to over N200.

It is said that due to the lack of cost coverage tariffs, the Federal Government narrowed the gap between cost coverage and permissible tariffs in the form of tariff subsidies.

The Minister of Energy, Adebayo Adelabu, said the government will provide a subsidy of N2.9 trillion to the power sector in 2024 without increasing the tariff.

For administrative reasons, the subsidy is only applicable to the generation cost paid by Discos to NBET at source in the form of Discos Transfer Obligations.

It is understood that the total amount of Genco bills collected by the DRO from the Discos on behalf of the NBET in accordance with the scope of coverage of the permitted Discos tariff.

100% of the transmission and management service charges paid by the Discos to the Market Operator (a branch of the Transmission Company of Nigeria) will be recovered.

However, it is worth noting that the generation cost is an essential component to ensure the production and supply of electricity throughout the country.

In November, the generation cost totaled N67.095 billion, but the Discos were allowed to recover N39.24 billion.

In addition, the share of the NBET bill borne by the discos depends on the percentage of production costs they can recover from the allowed tariff and that percentage is determined as the minimum transfer obligation in the regular tariff order adopted by the Commission.

However, the initial repeal resulted in a reduction in subsidy costs and distribution company revenues in order to collect cost-covering tariffs.

The increase in energy production costs has meant that the government has had to bear more costs in recent months.

For example, the cost of power generation increased from N63.8 per kWh in January 2024 to N117.27 per kWh in November.

The document states: “The Federal Government’s subsidy and tariff policy provides for a gradual transition to cost-based end-user tariffs with safeguards for vulnerable electricity consumers. The government is therefore committed to financing the revenue shortfall arising from the difference between the cost-reflective tariff approved by the Commission and the actual end-user tariff during the transition to cost-reflective tariffs, where applicable.”

Last month, the Executive Director of Research and Advocacy of the Nigerian Electricity Suppliers Association, Oduntan, said the government had reneged on its promise to subsidize Band B to E customers.
SundayAccording to Oduntan, only Band A customers pay the correct cost of electricity while the government subsidizes about 67% of what other customers should pay.

However, he said the government had promised to pay the difference but was still in default.

“Today, only people in Band A pay the actual electricity bill. If you are in Band B, C, D, E, the government subsidizes your electricity consumption up to 67%, which means you are not even using half of what you are supposed to get and the so-called subsidy is not paid by the government. It is a bit of a deficit now because it keeps increasing,” Oduntan said.

Meanwhile, tax revenues collected by distribution companies increased to N1.23 trillion between January and September 2024, surpassing the record in 2023.

According to an analysis of data released by the Nigerian Electricity Regulatory Authority, which included seven months of commercial performance of the disco, distribution companies collected a total of N1.548 trillion in fees during the review period, but managed to collect N1.228 trillion, which is a tax efficiency of 79.34% in the country.

The monthly revenue breakdown shows that N130.92 billion was collected in January, of which N95 billion was collected.

In February, N97 billion was collected against a planned N113 billion, in March N100.44 billion was collected against a billed N126.56 billion, in April N142.92 billion was collected against a billed N178.72 billion, and in May N139.23 billion was collected against a billed N191.65 billion.

In June, revenues rose to N150.86 billion, with a projected total turnover of N176.57 billion, while in July it was N197.11 billion. In August, N208.5 billion was billed, but N168.7 billion was collected; in September, N225.8 billion was billed, and N171.58 billion was collected.

Based on the current revenue pattern, discos have already surpassed the full year 2020 revenue and are expected to break the records of 2021, 2022 and 2023 by the end of 2024.

According to the National Bureau of Statistics, the revenue was N526.8 billion in 2020, N761.2 billion in 2021, N828.1 billion in 2022 and N1.1 trillion in 2023, showing an upward trend.