Chairman of the Nigeria Electricity Regulatory Commission (NERC), Sanusi Garba mentioned on Thursday that the Federal government would need to allocate a substantial N3.2 trillion as subsidy for the electricity sector in 2024 if the recent tariff hike is to be reversed.
During a meeting with stakeholders organized by the House of Representatives committee on Power, Garba highlighted that the current investments in the sector are insufficient to ensure a consistent power supply.
He emphasized that without concrete actions to tackle sector issues such as foreign exchange fluctuations and non-payment for gas, the sector is on a path towards a crisis.
Garba pointed out that prior to the recent tariff adjustment, DISCOS were only required to settle 10 percent of their energy bills, underscoring that the absence of financial support for subsidies is causing liquidity challenges in the sector.
He expressed concerns that due to the lack of subsidy payments, both gas supply and power generation have been declining, leading to system collapses mainly attributed to liquidity issues.
He warned of a looming risk of potential shutdown by the Generation and distribution companies, highlighting that establishing a cost-effective tariff structure is crucial for the sector’s sustainability.
Furthermore, he noted that between January 2020 and January 2023, tariffs escalated from 55 percent to 94 percent of cost recovery, with factors like FX unification and inflationary pressures driving the cost of tariff to N184/kWh.
Garba emphasized that if no action is taken, it would necessitate a substantial N3.2 trillion subsidy from the National Assembly and the Executive to cover the costs in 2024.
Additionally, he revealed that only N185 billion out of the N645 billion subsidy in 2023 has been financially supported, resulting in a funding gap of N459.5 billion.
Vice Chairman of NERC, Musiliu Oseni, who supported the recent tariff hike, justified that the increase was essential to prevent a complete collapse of the sector.
