Electricity customers on Band A feeders should prepare for a possible tariff hike as the government’s electricity subsidy has surged to N181.63 billion in September, up from N102.30 billion in May. This significant rise follows the Nigerian Electricity Regulatory Commission’s (NERC) previous removal of subsidies for these customers, who typically receive a minimum of 20 hours of electricity daily.
The subsidy was initially N140.7 billion when the removal was announced in April, leading to a tariff increase to N225 per kilowatt-hour. This decision faced backlash from consumers, including labor unions and educational institutions, as their electricity costs tripled.
After the subsidy briefly dropped in May, the tariff was reduced to N206.80/kWh, but it was subsequently raised to N209/kWh in July as the subsidy climbed again. With the subsidy continuing to rise—recorded at N163.87 billion in July, N173.88 billion in August, and N181.63 billion in September—speculation grows that another tariff increase could be on the horizon in the October Multi-Year Tariff Order.
The ongoing foreign exchange crisis has been a major factor in the subsidy increase, with the dollar exchange rate reaching N1,601.50 in September. NERC has stated that both the dollar rate and inflation significantly influence power production costs.
As of September, the NERC maintains a benchmark gas-to-power price of $2.42/MMBTU, although contracted gas supply and transportation costs are further complicating the situation. Despite rising generation costs, the Federal Government has yet to approve a new tariff hike, potentially due to the current economic hardships faced by citizens.
Power distribution companies (Discos) are increasingly vocal about their financial struggles due to non-cost-reflective tariffs, with some refusing to take additional electricity from the grid. Minister of Power Adebayo Adelabu has expressed concern over this refusal, noting that it has led to a significant reduction in potential generation capacity.
As the government aims to increase electricity generation to 6,000 megawatts by year-end, the call for a more sustainable tariff structure continues to grow amid the mounting financial pressures on the power sector.
