Nigeria’s Subsidy On Electricity Returns, Now N135bn In Q2 2023

The federal government’s subsidy in the power sector hit N135.2 billion in the second quarter of 2023, from the N36 billion it paid in the first quarter, contradicting the last administration of Muhammadu Buhari that it ‘quietly’ removed the monthly payments.

According to the new quarterly report by the Nigerian Electricity Regulatory Commission (NERC), the N135.2 billion recorded in the second quarter of 2023, was an increase of N99.21 billion or 275 per cent compared to the previous quarter of N36 billion.

The ex-Minister of Finance, Mrs Zainab Ahmed, had revealed in March 2022, that the federal government had quietly removed the subsidy on electricity tariff, saying that the government had to carefully adjust the prices incrementally at some levels.

“We have been able to quietly implement subsidy removal in the electricity sector and as we speak, we don’t have subsidies in the electricity sector. We did that incrementally over time by carefully adjusting the prices at some levels while holding the lower levels down,” she had stated.

However, the NERC report for Q2 stated that the increase was largely attributable to the government’s policy to harmonise changing rates.

“In the absence of cost-reflective tariffs, the government undertakes to cover the resultant gap (between the cost-reflective and allowed tariff) in the form of tariff shortfall funding.

“This funding is applied to the Nigerian Bulk Electricity Trading Plc (NBET) invoices that are to be paid by Distribution Companies (Discos). The amount to be covered by the Disco is based on the allowed tariff, determined by the commission and set out as their Minimum Remittance Obligation (MRO) in the periodic Tariff Orders issued by the commission.

“It is important to note that due to the absence of cost-reflective tariffs across all Discos, the government incurred a subsidy obligation of $135.23 billion in 2023/Q2, which is an increase of $99.21 billion (+275 per cent) compared to the N36.02 billion incurred in 2023/Q1; this increase is largely attributable to the government’s policy to harmonise exchange rates.

“On average, the subsidy obligation incurred by the government per month was N45.08 billion in 2023/Q2. For ease of administration of the subsidy, the MRO is limited to NBET only with the Market Operator (MO) being allowed to recover 100 per cent of its revenue requirement from the Discos.

“In 2023/Q2, the MRO-adjusted invoice from NBET to the Discos was N154.04 billion while the total remittance made was N152.48 billion, which translates to a 98.99 per cent remittance performance.

“The remittance performance of Discos to NBET in 2023/Q2 (98.99 per cent) is a 31.37 per cent increase compared to the 67.62 per cent remittance  performance recorded in 2023/Q1.

“The significant improvement in remittance performance by Discos is because a large portion of the NBET invoice is to be covered by the government in the form of subsidies,” the report stated.

According to NERC, the government’s subsidy obligation meant that in 2023/Q2, Discos were only expected to cover 53.25 percent of the total invoice received from NBET. The report noted that during the period, the total revenue collected by all Discos was N267.8 billion out of the N354.61 billion that was billed to customers.

“The Discos overall collection efficiency increased by 6.79 percentage points from 68.75 percent recorded in 2023/Q1. While the total collections increased by 8.41 per cent (compared to N247 billion 2023/Q1). The total billings declined by -1.33 per cent (compared to N359.3 billion in 2023/Q1),” the commission noted.

Besides, it explained that the total electricity generated during the quarter reduced to 8,867.05 Gigawatt per hour (GWh), translating to a decrease of -5.17 per cent (-483.19GWh) from the 9,350.24GWh generated in 2023/Q1.

The report noted that this was due to 16 of the 26 grid-connected power plants recording a decrease in total generation.

“The decrease in electricity generation in 2023/Q2 was due to a decrease in the available capacity of the power plants. Two of the top performing power plants in 2023/Q1–Olorunsogo and Alaoji NIPP were both unavailable for 84 days (approximately 91 per cent of the quarter) in 2023/Q2 due to gas constraints and mechanical faults,” NERC said.

Furthermore, the commission stressed that all the hydropower plants recorded decreases in their average generation in 2023/Q2, with Shiroro hydro plant recording a decrease in generation due to the shutting down of one of its four units/turbines for minor maintenance.

Jebba, NERC said, had 50 per cent of its turbines (289.2MW capacity) shut down in 2023/Q2 to allow it undergo total overhaul and replacement of key components, including generator rotor, winding and Automatic Voltage Regulator (AVR).

Emmanuel Addeh in Abuja and Peter Uzoho in Lagos

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