Electricity Subsidy Hits N181.63bn, Tariff Hike Looms

Nigeria’s monthly electricity subsidy has surged to N181.63 billion in September, fueling speculation of an imminent tariff hike. This development follows a steady increase in subsidy costs over the past three months, with the government paying N163.87 billion in July, N173.88 billion in August, and N181.63 billion in September.

The Nigerian Electricity Regulatory Commission (NERC) initially removed subsidies in areas categorized as Band A feeders on April 3, 2024, with a monthly subsidy of N140.7 billion. This led to a tariff hike to N225 per kilowatt-hour for consumers enjoying at least 20 hours of electricity daily. However, this decision sparked widespread outcry among Nigerians, including labor unions, educational and health institutions, whose electricity bills tripled following the subsidy removal.

In response to the backlash, the government reduced the Band A tariff to N206.80 per kilowatt-hour in May when subsidies dropped to N102.30 billion. NERC attributed this reduction to a fall in the dollar-to-naira exchange rate. However, the tariff later increased to N209 per kilowatt-hour in early July as subsidies rose again to N158 billion in June.

The rising subsidy costs have been attributed to various factors, including the increasing cost of power generation and transmission. The benchmark gas-to-power price remains at $2.42 per Million British Thermal Units, based on the established benchmark price by the Nigerian Midstream and Downstream Petroleum Regulatory Authority, in line with Section 167 of the Petroleum Industry Act 2021.

Furthermore, the dollar exchange rates have fluctuated over the past three months, with rates standing at N1,494.1 in July, N1,564.3 in August, and N1,601.5 in September. These fluctuations have contributed to the increasing subsidy costs.

With Nigeria’s inflation rate standing at 32.15 percent in August 2024, another tariff hike seems imminent unless power generation costs decrease. The NERC aims to create a financially sustainable electricity market, providing adequate and reliable power supply to drive the Nigerian economy. However, the potential tariff hike has raised concerns among Nigerians, who are already struggling with high electricity bills and economic hardship.