Nigeria’s Electricity Subsidy Skyrockets by 220%, Nears ₦2 Trillion Despite Tariff Hike

The Federal Government’s electricity subsidy expenditure surged from ₦610 billion in 2023 to a staggering ₦1.94 trillion in 2024, marking an increase of over 219%, according to the Nigerian Electricity Regulatory Commission (NERC).

This unprecedented spike comes despite the April 2024 tariff adjustment for Band A customers and is largely attributed to economic pressures following the naira’s depreciation and rising inflation after fuel subsidy removal.

Massive Funding Gap Despite Tariff Freeze
NERC revealed in its 2024 annual report that the subsidy covered the gap between cost-reflective tariffs and the actual rates customers were charged. However, the government paid only ₦371.34 million of the ₦1.94 trillion obligation—just 0.019%, leaving the power sector heavily indebted.

The report noted that tariff freezes, which kept rates at December 2022 levels, persisted throughout the year despite rising operational costs caused by forex volatility and inflation.

As a result, quarterly subsidies ballooned to ₦633.30 billion in Q1 2024—a 303% jump from the previous year’s quarterly average of ₦157.15 billion and a staggering 1,699% rise compared to 2022. Although the April tariff adjustment for Band A customers temporarily reduced the burden by nearly 40%, subsequent freezes pushed subsidies back up in the third and fourth quarters.

Breakdown by Distribution Companies (DisCos)
The total ₦1.94 trillion subsidy was spread across all 11 DisCos, with Abuja DisCo leading at ₦285 billion, followed by Ikeja (₦272 billion), Ibadan (₦236 billion), and Eko (₦231 billion). Yola DisCo, with the highest cost-reflective tariff at ₦266.64/kWh due to insecurity and operational challenges, received the largest subsidy per unit delivered.

On average, the cost-reflective tariff nationwide stood at ₦175.31/kWh compared to an allowed tariff of ₦100.27/kWh, creating a gap of ₦75.04 per kilowatt-hour that the government was expected to cover.

Unpaid Subsidies Deepen Sector Debt
Despite these commitments, the Federal Government failed to fund the subsidy, leaving the Nigerian Bulk Electricity Trading (NBET) company to grapple with rising debts owed to generation companies (GenCos), which now total nearly ₦5 trillion.

To address this, the government introduced the DisCo Remittance Obligation (DRO) system in 2024, mandating DisCos to remit 100% of their allowed revenue, while the government pays the shortfall to NBET. However, these payments have not materialized.

Experts Warn of Looming Crisis
Power sector analyst Bode Fadipe blamed the surge on naira devaluation and the sector’s dependence on imported equipment and dollar-priced gas. He warned that unless drastic reforms are implemented, Nigeria’s electricity sector might remain unstable for decades.

“Government debt to GenCos has climbed to about ₦4 trillion, and if you add this ₦1.94 trillion shortfall, we are looking at a liability of nearly ₦6 trillion,” Fadipe said. He added that full subsidy removal without a clear pricing framework could lead to widespread energy theft.

Dangote Calls for Private Sector Investment
Meanwhile, business mogul Aliko Dangote urged wealthy Nigerians to invest in power infrastructure, citing his company’s internal generation of 1,500MW as an example.

“Nigeria should be generating between 50,000MW and 60,000MW if the private sector steps in. What we have done with our refinery shows big projects are possible locally,” Dangote said, calling for reinvestment of capital into the domestic economy rather than offshore ventures.