The Federal Government of Nigeria has reduced its electricity subsidy by 40% in the second quarter of 2024, cutting the total from ₦633.3 billion in Q1 to ₦380.06 billion, according to the Nigerian Electricity Regulatory Commission’s (NERC) latest report. This move highlights the government’s ongoing effort to improve efficiency in the power sector through strategic tariff reforms.
The report from NERC points out that the significant drop in the subsidy is a result of a policy shift that increased tariffs for Band A customers, while tariffs for Bands B to E have been maintained at their December 2022 levels. This revision in pricing helped reduce the government’s financial burden from covering 90.57% of Generation Companies’ (GenCos) invoices in Q1 to 52.51% in Q2.
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Despite the reduction, the absence of cost-reflective tariffs across all consumer bands continues to create a financial gap between the actual cost of electricity generation and the charges levied on Distribution Companies (DisCos). The government fills this gap by subsidizing payments made by DisCos to the Nigerian Bulk Electricity Trading Company (NBET) through a mechanism known as the DisCos’ Remittance Obligation (DRO).
The subsidy reduction is part of a broader government strategy to introduce market-driven reforms aimed at ensuring the long-term financial stability of the electricity sector while gradually reducing the government’s fiscal responsibility, especially as electricity demand continues to rise across the country.
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