FG tackles mounting electricity debt, hikes tariff for Band A

In an attempt to address its growing debt in the industry, the Federal Government this week eliminated the subsidy on electricity used by consumers on Band A feeders, much to the protests and screams of Nigerians who are still struggling with the fallout from the withdrawal of the petrol subsidy.

Adebayo Adelabu announced his plan to end the electricity subsidy a few months after taking office as Minister of Power, claiming the Federal Government was no longer able to fulfil the obligation. It was reported that President Bola Tinubu has postponed the Federal Government's plan to eliminate the subsidy, which was scheduled to happen in January.

Similar to the petrol subsidy, consumers should be able to pay for the electricity they use, according to an agreement reached by the government and significant power industry companies. Government officials demanded that the electricity subsidy programme terminate because they believed it was unsustainable, but supply chain investors wanted a completely deregulated power market because they believed inadequate liquidity was "killing" the business.

Even though there was increasing pressure on Tinubu to approve the request, he first resisted. The President knew that the removal of the fuel subsidy upon taking office had caused problems for the Nigerian economy. Many Nigerians now find it difficult to eat because of this and his policy of floating the naira, as prices of commodities continued to skyrocket.
According to information obtained by our correspondent, the stakeholders were successful in persuading Adelabu that the government's removal of the subsidy and acceptance of consumer payment for consumption were necessary for the establishment of cost-reflective tariffs that would enable liquidity and create an efficient power sector.

Adelabu had repeatedly emphasised that the government could no longer afford to continue paying the electricity subsidies. The Nigerian power Regulatory Commission published the 2024 power pricing in January. It indicated that, in order to prevent a tariff increase, the Federal Government was to provide a N1.6 trillion annual subsidy.

In certain regions, the NERC permitted the distribution business to charge N56/kWh, with the government picking up the remaining amount as a subsidy, rather than the customers paying N122/kWh. Adelabu stated that the nation's mounting power debt made this "very difficult to sustain."

The minister claimed that the 2024 budget only allocated N450 billion for power subsidies; however, research by the NERC revealed that this year's subsidies will cost almost N2.9 trillion. He disclosed that the nation presently owed $1.3 billion to gas businesses and N1.3 trillion to companies that generated power.

A resolution opposing the Ministry of Power's intentions to approve the proposed increases in power rates was voted by the Senate on February 21. Additionally, considering the current state of affairs in the nation, the Senate rejected measures to eliminate the electricity subsidy. Then, the Senate urged the administration to abandon its plans to raise electricity prices. That being said, the Federal Government's subsequent move seems to indicate that it disregarded the Senate's decision.

Sunday Oduntan, Executive Director of Research and Advocacy at the Association of Nigerian energy Distributors, questioned why the federal government would subsidise energy for the wealthy and those who could afford it in an interview. In his view, the impoverished should receive the subsidies rather thanthose living in high-brow locations.
"How is the government going to subsidise power for wealthy individuals who drive Rolls-Royces? How will power subsidies from the government be provided to residents in Ikeja GRA? It is inappropriate. However, we lack a database to identify the wealthiest and poorest citizens of this nation. According to Oduntan, if there should be a power subsidy, it should go to the impoverished and low-income earners rather than the wealthy.

There were protests that another elimination of subsidies would worsen the plight of Nigerians, 133 million of whom are already facing multifaceted poverty, as Adelabu pushed for a cost-reflective pricing. At that point, he suggested eliminating the subsidy gradually over the following three years. He declared that removing it at once would not be just in the face of current economic hardship.
"Hardship results from the removal of petrol subsidies, devaluation of the naira, and high inflation of nearly 30%." Everyone is aware of it. Therefore, now is not the moment for anyone to demand that the electricity subsidies be completely eliminated. No.

It will come across as quite callous to the sentiments of our people. Therefore, the strategy will likely include a two- to three-year plan that will lead us towards a cost-reflective tariff; in other words, government subsidies will continue until the very end and will be periodically reduced.

Despite this consideration, the electricity subsidy was entirely removed from the tariff that power consumers in the Band A category were required to pay, who the NERC said constituted about 15 per cent of the total number of power users across the country.
The government, acting through the commission, further stated that the impacted parties would now be required to pay a price of N225 per kWh, which is almost a 240% increase from the prior rate of N68/kWh. Nigerians have now become quite angry over this and have accused the administration of being insensitive.

Some Nigerians expressed surprise that a group of people allegedly under Band A would get almost 20 hours of electrical supply when many could not boast of a one-hour supply in months, aside from accusations of insensitivity. According to reports, approximately 15% of Band A users use over 40% of the nation's total electricity produced.

Nigerians now purchase four units of energy for N1,000 following the news. Customers without metres are wary about anticipated bills. Organisations from the civil society, consumer advocacy groups, manufacturers, and private citizens have protested the pricing increase, urging the government to reverse the move that they claim will worsen poverty and energy scarcity in Nigeria. There are worries that if producers raise the price of goods, the surge may soon trickle down to other customers.

Nevertheless, despite requests for its reversal, the electricity minister stated at a press conference in Abuja on Friday that the Federal Government would stick with the new rate system for Band A customers.

The minister declared, "We are in a price regime known as subsidy pricing, in which a significant amount of the cost of generating, transferring, and distributing power is covered by the government.

It is imperative that I inform you that prior to the implementation of the tariff hike, the government of Nigeria was subsidising a minimum of 67% of the expenses associated with producing, transferring, and distributing energy in the country.

According to the current currency rate, this will equal N2.9 trillion in 2024. This represents over ten percent of the federal budget. The government must handle numerous sectors, the power industry being just one of them.

The minister also charged Nigerians of wasting energy, claiming that because electricity is so inexpensive, they leave their air conditioners and refrigerators running. He reiterated that the withdrawal of subsidies would eventually affect other bands as well, ending the provision of electricity subsidies.

consumers on Bands B through E, however, have expressed dissatisfaction with being charged as Band A consumers. In a similar vein, a lot of Band A members claimed they haven't received enough supply to support their Band A status, calling on the NERC to intervene.
DisCos are required to disclose the whole list of consumers on Band A, and the NERC ordered on Saturday that overcharged clients receive a refund by April 11.

When the Ibadan DisCo revealed a list revealing several former Band A feeders down to as low as Band E, even with zero hours of power supply, Nigerians reacted disbelief. With as little as seven hours of power supply, the farm feeder that supplied the Obasanjo Farm dropped from Band A to E, revealing the depressing state of the power industry.

In response, Senator Ali Ndume, the Chief Whip of the Senate and a senator from Borno South, said that Nigerians had not yet recovered from the elimination of the fuel subsidy and that the timing was incorrect. Ndume denounced the action and called for the Federal Government to reconsider its position in the interest of Nigerians.

He said Nigerians were facing many challenges, including unprecedented inflation, poor purchasing power, insecurity, and other hardships. He said the Federal Government should focus on providing stable electricity to Nigerians, reducing inflation, stabilising the naira, reducing food prices, and providing other basic amenities to Nigerians before increasing the tariff.
The legislator questioned why the National Assembly, which represents the people, was not properly consulted before making such a significant decision.

"Me and many of my colleagues were taken aback by the news of the rise. It also coincided with a break of the National Assembly. This hike's timing, in my opinion, is completely off. Nigerians are facing numerous difficulties.

It is not fair to place this additional duty on them. Nigerians are still recovering from last year's elimination of fuel subsidies. Many Nigerians are still attempting to deal with the fallout