A Review of the Nigerian Energy Industry

Govt owes power firms N95bn in subsidy


26 August 2014, Abuja – The Federal Government currently owes the power distribution companies about N95bn in subsidy for electricity usage by consumers, investigation by our correspondent has revealed.

Out of the N100bn electricity subsidy, which was to be released to the industry between 2012 and 2013, only N5bn got to the companies.

The money, which was supposed to have been released by the Ministry of Finance, covered the N12 subsidy per kilowatt/hour of electricity that the government claimed it was currently paying on behalf of electricity consumers.

Based on the computation of the Nigerian Electricity Regulatory Commission, consumers are supposed to be paying about N24 for each kilowatt of electricity per hour, but because of the citizens’ adverse reactions to higher tariffs, the government took up the responsibility of paying half of the amount as subsidy for consumers in the R2 category, which most households belong to.

The Federal Government as part of its efforts to provide stable electricity said in 2012 that it had set aside N100bn to subsidise electricity supply for that year and the next.

Findings by our correspondent on Monday, however, indicated that only N5bn had officially been released to the sector as subsidies.

Technically, the Federal Government is indebted to the power generation, distribution and transmission companies to the tune of the subsidy arrears. Ideally, such arrears are supposed to be payable to the Market Operator, an arm of the transmission network, which acts as a treasury unit for the industry. The power firms retire their invoices to the Market Operator.

With the recent upward review of gas price, NERC and other stakeholders in the petroleum and power sectors are currently considering sharing parameters for the new electricity tariff that will soon be created.

The Chairman, NERC, Dr. Sam Amadi, told our correspondent in an interview that the commission was encouraging the Federal Government to adopt an upfront subsidy payment mode, where it would have to pay first before the power would be consumed.

He said, “With this, we will not be assuming that the subsidy for a particular month will be paid, and then be faced with the reality of non-payment after all. With upfront subsidy, power firms will get their money in good time and consumers will have to pay less than they will ordinary pay.

“It can be indirect subsidy in form of tax holidays and the likes for the power firms. We feel the government should be committed to upfront subsidy so that the power firms can get back their money.”

The Nigerian Electricity Regulatory Agency in 2012 did announce the setting aside of N100bn by the government to support the Multi-Year Tariff Order in the country.

The Commissioner, Market Competition and Rates, NERA, Mr. Eyo Ekpo, had explained then that the government would provide N50bn that year and additional N50bn in 2013 to support the new tariff regime.

He had said, “Over the next two to three years, the government is going to make available N50bn this year and N50bn next year to support the new electricity tariff regime.

“And by 2014, most of the subsidy will go out except the cross-subsidy provided by the higher classes for the R1; that one will be made but the government subsidy will go out of the Nigerian electricity market.”


– The Punch

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