Electricity subsidy gulps N629bn, as DisCos generate N1.1trn

The Federal Government spent N628.61 billion as subsidy on electricity in 2023, as power distribution companies collected a total revenue of N1.08 trillion during the same period, the latest industry data obtained from the Nigerian Electricity Regulatory Commission during the week showed.

An analysis of figures from the power sector regulator indicated that electricity subsidies continued to increase every quarter all through last year.

It was observed that subsidies on power in the first, second, third, and fourth quarters of 2024 were N36.02 billion, N135.23 billion, N204.6 billion, and N252.76 billion respectively.

It was also observed that during the same period, power distribution companies raked in N247.09 billion, N267.86 billion, N267.61 billion, and N294.95 billion in the first, second, third, and fourth quarters of 2023 respectively.

The rise in revenue by DisCos prompted calls for improved services from the power firms, as consumers condemned the Discos’ inability to deliver satisfactorily.

In the absence of cost-reflective tariffs, the Federal Government undertakes to cover the resultant gap between the cost-reflective and allowed tariff in the form of tariff subsidies.

For ease of administration, the subsidy is only applied to the power generation cost payable by DisCos to the Nigerian Bulk Electricity Trading company, which is the power trader in the sector.

The transmission and administrative service costs payable by DisCos to the Market Operator, an arm of the Transmission Company of Nigeria, are recovered 100 percent.

However, it should be noted that the power generation cost is a major component that guarantees electricity generation and supply across the country.

Also, the share of the NBET invoice to be covered by DisCos is determined by the percentage of the generation cost they can recover from the allowed tariff and set out as their Minimum Remittance Obligation in the periodic tariff orders issued by the commission.

Commenting on the amount spent on electricity subsidy in the fourth quarter of 2023 in its latest report, the NERC said, “It is important to note that due to the absence of cost-reflective tariffs across all Discos, the government incurred a subsidy obligation of N252.76 billion in 2023/Q4.”

This represents an average of N84.25 billion per month, which is an increase of N48.16 billion (23.54 percent), compared to the N204.6bn (average of N68.20 billion per month) incurred in 2023/Q3.

“This increase is largely attributable to the government’s policy to harmonise exchange rates, while also directing that end-user customer tariffs remain at the December 2022 approved rates,” the commission stated.

Explaining the subsidy spent on power in the third quarter, NERC said, “It is important to note that due to the absence of cost-reflective tariffs across all Discos, the government incurred a subsidy obligation of N204.59bn in 2023/Q3 (average of N68.20bn per month).”

This is an increase of N69.37 billion (51.30 percent) compared to the N135.23 billion (average of N45.08 billion per month) incurred in 2023/Q2; this increase is largely attributable to the government’s policy to harmonise exchange rates.

“The rise in the government’s subsidy obligation meant that in 2023/Q3, Discos were only expected to cover 45 percent of the total invoice received from NBET. For ease of administration of the subsidy, the MRO is limited to NBET only with the MO being allowed to recover 100 per cent of its revenue requirement from the Discos.”

On the same subsidy issue for the second quarter of 2023, the commission stated that due to the absence of cost-reflective tariffs across all Discos, the “government incurred a subsidy obligation of N135.23bn in 2023/Q2.”

It added that this represents “an increase of N99.21 billion (275 percent) compared to the N36.02 billion incurred in 2023/Q1. This increase is largely attributable to the government’s policy to harmonise exchange rates. On average, the subsidy obligation incurred by the government per month was N45.08 billion in 2023/Q2.”

The data from NERC also showed how power distribution companies garnered about N1.1tn from customers across the country last year amid complaints of poor supply by end-users of electricity.

On the collection efficiency of the Discos in the fourth quarter of 2023, the regulator said, “The total revenue collected by all Discos in 2023/Q4 was N294.95 billion out of N399.69 billion billed to customers.

“This translates to a collection efficiency of 73.79 percent which represents a decrease of -2.77 basic points when compared to 2023/Q3  (76.56 percent).”

The commission explained that over previous quarters, it observed that whenever there was an increase in energy offtake, there was usually a decrease in DisCos’ billing and collection efficiencies for the same period.

“This is probably because DisCos send more energy to areas where they incur more commercial losses. The inverse relationship between energy offtake by DisCos and billing as well as collection efficiencies may pose challenges to the long-term growth of the NESI (Nigeria Electricity Supply Industry) unless DisCos make significant progress towards improving energy accounting and addressing the major causes of losses,” it stated.