In a recent Ministerial Briefing held in Abuja, the Minister of Power, Dr. Adebayo Adelabu, revealed that the Federal Government has invested a staggering N2.9 trillion in electricity subsidy. Despite the increase in tariff for Band A customers, the government continues to subsidize 75% of electricity supply in Nigeria.
Adelabu emphasized that the government remains committed to its pro-poor power policy, subsidizing no less than 67% of the cost of producing, transmitting, and distributing electricity in the country, to ensure affordable and accessible electricity for all Nigerians.
The Minister shed light on the importance of achieving operational sustainability for power operators, highlighting the need for cost recovery and the potential for profit. Adelabu reiterated the government’s commitment to supporting the power sector and its determination not to withdraw 100% of the subsidy on electricity.
“The investment of N2.9 trillion in electricity subsidy showcases the government’s dedication to improving the power infrastructure and ensuring reliable access to electricity for all Nigerians” he added.
According to him, when a business can’t cover its costs, its sustainability becomes uncertain. In the case of the power sector, cost recovery can be achieved through either commercial pricing or subsidized pricing.
Commercial pricing involves transferring the entire cost of producing power, along with profits, to consumers. On the other hand, subsidized pricing, like the current approach in Nigeria, involves the government shouldering a significant portion of the cost.
Adelabu highlighted that maintaining the full subsidy regime is no longer sustainable, especially when there are competing needs in other sectors that also require attention.
“It’s important to consider the limited resources available to the government. By removing the subsidy, it is believed that local investments in the power sector will improve and foreign investors will be attracted,” he said.
Minister Adelabu pointed out the limited impact of the tariff adjustment as it affects around 15% of electricity customers in Nigeria, which is about 1.5 million people. And even with the increase, the cost per kilowatt is more than 50% cheaper than alternative power sources.
“The average cost is alternative to diesel or fuel because you have to purchase the generator, fuel it and service it from time to time,” he stated.
The new tariff category which will provide 20 hours of power supply to consumers has 481 feeders classified as Batch A, the minister disclosed.
He added that liquidity and pricing have indeed been major issues in the power sector. By implementing the right pricing, it can stimulate competition and attract more investment to the industry. The tariff review aligns with the government’s goal of maintaining a subsidized pricing regime in the short term while gradually transitioning to a fully cost-reflective tariff over a period of three years.
To Adelabu, the government is sensitive to the challenges faced by the people and has taken steps to avoid a sudden removal of subsidies in the power sector, similar to what was done in the oil and gas sector. This approach allows for a more gradual transition and ensures that the impact on consumers is considered.
The power sector being on the exclusive list meant that only the Federal Government had the authority to invest in it. However, with the signing of the Power Sector Act, the government has decentralized the sector. The decentralization of the power sector opens up opportunities for investment from various stakeholders, not just the federal government.
The Minister of Information and National Orientation, Mohammed Idris, who is the host of the meeting, mentioned that the tariff review is a strategic step towards creating a better electricity sector. He reassured Nigerians that any misconceptions and concerns about the review are understandable, but the goal is to make the sector more sustainable, efficient, and fair for everyone.
