Business

FG To Spend $600m Yearly On Electricity Subsidy


The Federal Government has unveiled plans to implement a $600 million yearly electricity subsidy for all consumers starting in 2025, as part of ongoing power sector reforms.

The subsidy, set to last until 2027, aims to offset the gap between cost-reflective tariffs and regulated electricity rates while addressing Nigeria’s metering deficit and improving the financial stability of power distribution companies.

According to Nigeria’s Energy Compact document obtained by WAFFI TV, the initiative is a key part of the National Energy Compact, aligning with the country’s broader electrification and clean energy transition strategies. Nigeria, alongside 11 other African nations, including Côte d’Ivoire and Zambia, presented its energy compact at a recent summit in Tanzania, focusing on innovative energy solutions.

The subsidy plan is a temporary measure to ensure affordability as the government gradually transitions to full cost-reflective tariffs. It may take different forms, such as a fixed monthly subsidy per consumer or subsidizing the first 50 kilowatt-hours of electricity used each month. This approach seeks to correct past subsidy imbalances, where wealthier households benefited disproportionately.

By 2027, the government aims to introduce a social tariff to protect low-income and vulnerable consumers while phasing out broad subsidies. The Energy Compact document outlines a phased transition, starting with the $600 million subsidy from 2025 to 2027 while closing the metering gap, followed by a fully cost-reflective tariff system except for the social tariff.

A critical aspect of the reform is addressing Nigeria’s metering deficit, currently affecting about seven million electricity consumers. The government plans to install 1.5 million smart meters in 2025, four million in 2026, and another 1.5 million in 2027. Closing this gap is expected to improve revenue collection, reduce financial losses, and ensure tariffs align with actual consumption, minimizing the need for future subsidies.

Nigeria’s power sector has long struggled with financial instability due to high technical and commercial losses, low tariff recovery rates, and liquidity challenges. Despite interventions under the Power Sector Recovery Programme, tariff shortfalls hit N650 billion in 2023 and could surpass N2.2 trillion in 2024.

The subsidy scheme is designed to provide temporary relief while ensuring that power distribution companies meet their financial obligations to generation firms and the Transmission Company of Nigeria.


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