Electricity subsidy removal calls intensify amid rising industry debts

There are concerns among Nigerians that further increases in electricity tariffs could worsen their economic situation, although the government and operators have consistently called for cost-reflective tariffs, write DARE OLAWIN

As it happened with fuel subsidy, the government and major players in the power sector have all agreed on the need to allow customers to pay for the electricity they consume. To them, electricity is no more a service, but a commodity that must be fully paid for by whoever is ready to buy it. While those in the government have been clamouring for an end to the electricity subsidy regime because it was no longer sustainable, investors in the supply chain want a fully deregulated power sector, saying lack of liquidity is ‘killing’ the industry.

Tinubu delaying process

It was gathered that stakeholders in the power sector have been on President Bola Tinubu’s neck to remove the subsidy on electricity. However, there were reports that the President had decided not to heed the request to end the electricity subsidy regime because of the negative effect it would have on Nigerians.

The President is very aware of the fact that the Nigerian economy ran into a problem after he removed fuel subsidy upon his assumption of office. This, coupled with his policy to float the naira, has made feeding difficult for many Nigerians as prices of commodities continued to skyrocket.

As a result, the repeated calls by stakeholders in the electricity value chain that subsidy be removed are being rebuffed by the President who fears adding more to the sufferings of the masses. Our correspondent learnt that the stakeholders had succeeded in convincing the Minister of Power, Adebayo Adelabu, that the only way to have an effective power sector was to allow liquidity through cost-reflective tariffs, which could only be achieved if the government removed the subsidy and allowed customers to pay for their consumption.

Adelabu had on many occasions emphasised that the government could no longer sustain the payment of subsidy on electricity. In November 2023, Adelabu said that the President stopped the implementation of a hike in electricity tariff and insisted that subsidy be paid on power consumed nationwide.

Speaking on the call for a cost-reflective tariff, which would lead to a hike in the amount payable for power, Adelabu said, “The power sector is an industry that is very sensitive to any leader. You cannot jump overnight and implement the cost-reflective tariff. I can tell you that till today the government still subsidises power. Tariffs should have been raised months back, but Mr President said until we are able to achieve regular and incremental power supply, we can’t touch the tariff.”

In January, the Nigerian Electricity Regulatory Commission released the 2024 electricity tariffs, which showed that the Federal Government was to shoulder about N1.6tn subsidy for the year, to avert a hike in tariff.

Instead of customers paying N122/KWh in some areas, the NERC allowed the distribution company to charge N56/kWh, leaving the remaining for the government to bear as subsidy. However, Adelabu recently said it was now “very difficult to sustain subsidy on electricity” because the country’s power debt had continued to soar.

The minister stated that only N450bn was appropriated for electricity subsidy in the 2024 budget, but findings by the NERC showed that subsidy would gulp about N2.9tn this year. He revealed that the country was currently indebted to the tune of N1.3tn to electricity generating companies, while the debt to gas companies was $1.3bn.

 The minister had been complaining that the Federal Government had not been able to fulfill its promises to Discos in paying electricity subsidy when due.

“We also want to appeal to the Federal Government that once there is a subsidy promise, it has to be fully funded. If our government is not ready to fund subsidies, it is actually better for us to migrate to a fully cost-reflective tariff; because liquidity is a major issue in the sector, which has led to a huge debt being owed power generating companies. And once they are owed, they are also unable to pay the gas suppliers.

“When the gas suppliers are not paid, they will be unwilling to supply regular gas to them. So, why are these debts piling up? Part of the debts is owed by the Discos. The Federal Government also owes a huge portion of these debts, which relates to the unfunded portion of the subsidy,” Adelabu told newsmen during his last visit to Olorunshogo and Omotosho power plants in Ogun and Ondo States, respectively.

Despite the pressure from Adelabu, sources said the President had insisted that he would not remove the subsidy on electricity yet.

Discos speak

In an exclusive interview with our correspondent, the Executive Director of Research and Advocacy of the Association of Nigerian Electricity Distributors, Sunday Oduntan, said Tinubu had been the one delaying power subsidy removal.

“As a customer in Nigeria, whether you are metred or not, whatever you are paying is below the cost of production. It is an average of N55/kWh when it should be N112/KWh. That’s why we have shortfalls that is why we are talking about subsidy.

“Until we all agree on the cost of production of electricity and the selling price, we will be talking about the same thing. We should look at it from all angles. Though DisCos also need to be efficient, but if the price is not right, the product will not be available,” he said.

 According to Oduntan, the government has been defaulting in paying electricity subsidies.

“They (FG) paid in the past; they promised to pay some this January. The price was to go up in January; the Federal Government said they would cushion the effect. By law, they have to review the tariff every six months. They reviewed it in December; the new tariff was to take effect in January. The President said, ‘No, don’t inflict more hardship on the people. We can’t remove subsidy on petrol and power at the same time’.

“That is what the President did. The man is the only person who has not allowed you and me to pay the true cost of electricity since January. The cost should have been between N112 and N150/kWh, but we are still paying N55, and some are paying N62. You know the cost of doing business in Lagos is different from Damaturu, Port Harcourt, Ilorin or Abuja. That is why we have 11 DisCos,” he added.

Subsidise the poor only

Oduntan advised the government to subsidise the poor and low-income earners, saying, however, that a database would be required to know who is poor or not.

“How will the government be subsidising power for rich men and people using Rolls Royce? It is not proper. But we don’t have a database to determine who is rich or poor in this country. If there should be subsidy on power, it should be for the low-income earners, the poor; not the rich,” Oduntan maintained.

Senate rejects tariff hike

In February, the Senate kicked against plans by the Ministry of Power to remove electricity subsidy given the current hardships in the country, calling on the government to step down the idea of an increase in electricity tariff.

The upper chamber also directed the committee on power to investigate the N2tn required for electricity subsidy payment to avoid the repeat of the fuel subsidy scenario, other debts owed in the sector, and the state of metering in the country.

It also resolved to conduct a proper investigation into the reasons behind the call for the removal of electricity subsidy. The Senate President, Godswill Akpabio, announced the resolution after a majority of the senators supported it through voice votes.

The According reports that the resolution of the Senate followed its consideration and approval of a motion moved by Senator Aminu Abbas of Adamawa Central during plenary on the need to retain subsidy on electricity in the country for the foreseeable future.

Abbas in his lead debate said, “Senate notes with greatest dismay the plan to increase electricity tariff by the relevant statutory authority in gross disregard of increased economic challenges with attendant widespread poverty and high cost of living.

“The Senate may note that the Hon. Minister of Power was reported saying ‘the nation must begin to move towards a cost-effective tariff model, as the country is currently indebted to the tune of N1.3tn naira to generating companies, and $1.3bn owed gas companies.

“According to him, over N2tn needed for subsidy, only N450bn was budgeted this year. The same electricity businesses are collecting money from customers for services not rendered. When they have not added anything to the equipment, they inherited it from PHCN. Communities buy transformers to replace damaged ones in addition to overburden bills and arbitrary estimates for unmetered customers.

“Regret that in addition to the high cost of living being experienced in the country, the unmetered customers who are owners of small and medium enterprises are adversely impacted by exorbitant electricity charges and by implication have their businesses affected.”

Contributing to the debate, Senator Aminu Tambuwal of Sokoto South said it was abnormal for the government to “consider hiking electricity tariff in the face of hardship,” stressing that “such action should not even be contemplated in the first place”.

Similarly, Senator Orji Kalu of Abia North noted that even advanced economies subsidise electricity, saying, “Why should people be paying for what they did not use? Our focus should be on transmission and distribution.”

Subsidy removal in phases

Following the outcry that greeted the planned subsidy removal, Adelabu proposed a gradual removal of the subsidy, saying it could be done in phases within the next three years.

He also concurred that it would not be fair to remove the subsidy at once in the face of current economic hardship.

“Resulting from the high inflation of almost 30 per cent, resulting from the devaluation of the naira, resulting from the subsidy, there is hardship. And everybody feels it. So, it is not the time that anybody will call for a total removal of electricity subsidy. No.

“It will sound highly insensitive to the feelings of our people. So, what we intend to have in the policy is a roadmap. Probably, two to three years roadmap that will migrate us into a cost-reflective tariff, which means that government subsidy will remain to the end, and we will keep reducing it from time to time.”

 The minister emphasised that currently, the government subsidy was about 66 per cent of the tariffs being paid by Nigerians for power consumption.

He said a draft policy to be released soon would see attempts at signing up to a minimum payment assurance for capacity in generating companies to ensure sustainability and stabilisation of generation output.

The minister’s statement is an attestation that the government is not going back on its planned removal of electricity subsidy, whether now or in the next three years. As a result, individual consumers should not be caught unawares like in the case of fuel subsidy.

Many feel it would only be fair to remove electricity subsidy after all the over 13 million consumers must have been metered so that Nigerians will not be paying heavily for darkness.