Nigeria’s electricity subsidy burden has ballooned to unprecedented levels, with the Nigerian Electricity Regulatory Commission (NERC) directly attributing the increase to a federal government policy initiated in December 2022 that froze electricity tariffs for the majority of customer categories. This policy persisted despite escalating inflation and foreign exchange (FX) volatility, which drastically increased the actual cost of electricity production.
According to a recent NERC report, the government’s directive to maintain all customer tariffs at their December 2022 approved rates, even as the cost-reflective tariffs rose due to a substantial increase in FX rates, caused the electricity subsidy to hit aN633.30 billion in the first quarter of 2024 (Q1 2024). This Q1 subsidy alone represents a 303 per cent increase from the 2023 quarterly average of N157.15 billion, and an even more worrisome 1,699 per cent increase from the 2022 average of N35.21 billion per quarter.
The report highlights a historic high for Nigeria’s electricity subsidy bill, which reached N1.94 trillion in 2024, marking the highest level in a decade. NERC’s analysis shows that while subsidies have fluctuated widely over the past ten years, they have never approached these current figures. Previous annual totals cited include N230 billion in 2015, N310 billion in 2016, N350 billion in 2017, N440 billion in 2018, and N530 billion in 2019. Even more recently, subsidy numbers remained elevated through 2020 (N510 billion), 2021 (N250 billion), 2022 (N140 billion), and 2023 (N650 billion) before the unprecedented spike witnessed in 2024.
In a bid to stem the tide of spiralling subsidies, NERC announced a hike in electricity tariffs for Band A customers on April 3, 2024. These customers, defined as those receiving at least 20 hours of daily power supply, saw their tariff jump from N66 per kilowatt-hour to N225/kWh, before being subsequently adjusted downward to N206.80/kWh in May.
This tariff increase was projected to alleviate the government’s subsidy burden by an estimated N1.14 trillion in 2024. While the initial impact did see a reduction in subsidy liabilities to N380 billion in the second quarter (Q2), the relief proved to be short-lived. By the third quarter (Q3), the subsidy bill had climbed to N464 billion, and by the fourth quarter (Q4), it reached N556 billion.
This rapid re-escalation, as noted by electricity consumers and stakeholders alike, indicates the erosive effects of persistent inflation and currency devaluation, which continue to undermine the benefits derived from attempts at cost-reflective pricing in the sector.
