On April 3rd, the Nigerian Electricity Regulatory Commission shook the nation with its abrupt decision to terminate subsidies for Band A customers, recipients of 20 hours of daily power supply.
Against a grim backdrop of escalating public hardship, exacerbated by governmental actions, the timing of this policy upheaval couldn’t be more contentious. Its ripple effects extend far beyond mere electricity bills, casting shadows of uncertainty over the nation’s socio-economic equilibrium.
Amidst the whirlwind of Nigeria’s energy sector, the recent tariff upheaval has left Band A customers reeling from a staggering jump in unit costs, catapulting from N68 to a daunting N225 per kilowatt hour.
With 1.9 million customers affected, representing 15 percent of the nation’s consumer base, the implications are dire. While Band B, C, D, and E customers remain temporarily unscathed, the looming threat of erratic electricity supply offers scant comfort.
Predictably, the tariff hike has sparked fervent opposition from organised labor and activists, who clamor for its swift reversal.
The Manufacturers Association of Nigeria paints a bleak picture, warning of impending factory closures and widespread job losses in the face of hyperinflation and stagnant wages.
Echoes of similar struggles reverberate across Europe, where governments grapple with the aftermath of the COVID-19 pandemic, navigating the treacherous waters of energy subsidies.
The European Union’s staggering figures reveal the immense financial burden, with €216 billion in subsidies recorded in 2021, escalating to a staggering €390 billion in 2022.
Yet, amidst these global challenges, Nigeria’s government appears singularly fixated on the fiscal windfall promised by subsidy withdrawal. Minister of Power, Adebayo Adelabu, echoes familiar rhetoric, likening electricity subsidies to a luxury enjoyed solely by the affluent.
In a narrative reminiscent of the petrol subsidy debate, the government’s stance underscores a glaring disconnect from the grassroots realities of its populace.
In Nigeria, it’s evident that the government’s primary focus is on reaping a significant financial gain. Minister of Power, Adebayo Adelabu, has staunchly advocated for the removal of electricity subsidies, drawing parallels to the discourse preceding the removal of petrol subsidies.
The targeted savings from this cancellation are substantial, aiming to cut N135.26 billion from the current N216.2 billion subsidy expenditure, with projections soaring to a staggering N1.14 trillion by 2024.
However, while the government prioritises fiscal savings, the broader economic repercussions loom large. Nigeria’s electricity predicament presents a complex dilemma.
Vice-Chairman of the Nigerian Electricity Regulatory Commission, Musiliu Oseni, casts doubt on the feasibility of uninterrupted power supply as promised by distribution companies. Furthermore, the tariff increase offers no assurance of sectoral enhancement, leaving the nation entangled in a precarious catch-22 scenario.
Viewed through a critical lens, the aftermath of Tinubu’s decisive move to scrap petrol subsidies last May paints a grim picture of economic instability. Inflation, once a moderate 22.41 percent, has surged relentlessly, peaking at a staggering 31.70 percent by February.
The collateral damage is starkly evident: in 2023 alone, 767 manufacturers shuttered their operations, with an additional 335 teetering on the brink of collapse. The unsold inventory amassed a staggering N370 billion, while a heartbreaking 3,567 workers faced the harsh reality of unemployment. Meanwhile, real growth staggered to a meager 2.4 percent.
Yet, the specter of a similar fate looms ominously over the horizon with the impending removal of electricity subsidies. Adding fuel to the fire, the electricity sector languishes in a quagmire of stagnation, despite the privatization of generation and distribution in 2013.
Despite boasting an installed capacity exceeding 12,000 megawatts, Nigeria pales in comparison to powerhouses like South Africa and Egypt, each boasting a formidable 58,000MW generation capacity. However, attempts to inject even a fraction of this potential into the national grid risk triggering catastrophic grid collapses, underscoring the sector’s dire state of affairs.
Amidst the chaos, the DisCos spurn their allocated power while the GenCos wrestle with financial woes. A decade post-privatisation, the DisCos remain culpable for leaving a sizable chunk of customers without meters, clandestinely exploiting this gap to levy arbitrary charges, exacerbating payment defaults.
In hindsight, the Tinubu administration ought to have prioritised comprehensive reforms in these critical areas before embarking on the tariff hike.
Yet, the government’s purported gains may prove elusive. As tariffs soar, consumers may flock to alternative energy sources, diminishing consumption.
With a staggering eight million metering deficit, Nigerians find themselves at the mercy of the DisCos. It falls upon the shoulders of Tinubu, Adelabu, and NERC to elevate meter provision to the apex of their agenda.
A semblance of resolution beckons if the government humbles itself, acknowledging its premature actions, and engages in widespread dialogue with all stakeholders before forging ahead.
Augmenting capacity across the generation, distribution, and transmission fronts emerges as an imperative step towards ameliorating the prevailing quandary.