Nigerian government has reduced electricity subsidies by 35%, following a targeted tariff increase for high-usage consumers implemented last year.
This adjustment has generated an additional 700 billion naira in revenue, marking a 70% increase, and has contributed to decreasing the government’s tariff shortfall from 3 trillion to 1.9 trillion naira.
The tariff adjustment specifically affected the top 15% of electricity users, including households and businesses consuming larger amounts of electricity. These consumers, classified under Band A, experienced a significant increase in electricity tariffs, from N68 to N225 per kilowatt-hour.
This move was part of a broader economic reform agenda initiated by President Bola Tinubu, aimed at reducing government expenditure on subsidies and improving the financial sustainability of the power sector.
Prior to the tariff hike, Nigeria was spending nearly 200 billion naira monthly on electricity subsidies due to non-cost-reflective tariffs. The recent adjustments have led to a reduction in the government’s subsidy obligations, with the monthly spending expected to decrease by 52%, from N261.2 billion to approximately N125.94 billion. This reduction is anticipated to unlock significant fiscal savings and ease the financial strain on public finances.
Despite these financial gains, Nigeria’s power sector continues to face deep-rooted challenges. The country has an installed capacity of 13,000 megawatts but typically produces only about a third of that, exacerbating the reliance on costly alternatives like diesel-powered generators.
State-controlled power tariffs have historically been too low for distribution companies to cover their costs.
In response to the mounting debts, the government has announced plans to pay half of the 4 trillion naira owed to power generating companies through budgetary allocations.
This initiative aims to alleviate the substantial financial strain on the sector and improve electricity generation.
The tariff hike and subsidy reduction have sparked mixed reactions among stakeholders. While the government emphasizes the necessity of these measures for economic sustainability, critics express concerns about the immediate impact on consumers, particularly those in lower-income households.
The Manufacturers Association of Nigeria has reported the shutdown of over 300 companies and the loss of 380,000 jobs since the hike in power tariffs, highlighting the adverse effects on the manufacturing sector.
International organizations like the International Monetary Fund (IMF) have supported Nigeria’s efforts to reduce electricity subsidies, viewing them as essential for reducing government expenditure and promoting sectoral efficiency.
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The IMF has advocated for the elimination of these subsidies, emphasizing the need for continued support to vulnerable sectors, especially in rural areas.
