Joseph Bakare
The Federal Government is no longer on the driver position in driving efficiency in the electricity sector even with widely applauded reforms ignited by the Electricity Act.
Recall that President Bola Tinubu signed the Electricity Act (Amendment) Bill, 2024, into law.
The Bull, which was passed by the House of Representatives on July 27, 2023, and the Senate on November 14, 2023, was sponsored by Honourable Babajimi Benson, who represents Ikorodu Federal Constituency of Lagos State.
The Electricity Act (Amendment) Bill, 2024, seeks to address the development and environmental concerns of host communities, and sets aside five per cent of the actual annual operating expenditures of power generating companies (GENCOs) from the preceding year for the development of their respective host communities.
The Bill further provides that the funds set aside for the development of host communities will be received, managed, and administered for infrastructure development in the host communities by a reputable Trustee/Manager to be jointly appointed by the respective GENCO and their host community.
Despite the provisions of the Act, the Minister of Power, Adebayo Adelabu, has revealed that the Federal Government owes electricity generation companies (GenCos) and distribution companies (DisCos) a staggering N4 trillion in outstanding subsidies.
During the ongoing public presentation of Nigeria’s National Integrated Electricity Policy and Integrated Resource Plan in Abuja, Adelabu highlighted how this massive debt impedes the sector’s ability to provide efficient service to consumers.
The Minister broke down the debt, stating that GenCos are owed N2 trillion as legacy debt, while another N1.9 trillion is owed for electricity subsidies in 2024. Additionally, DisCos are owed N450 billion for the same period.
“How can we expect GenCos to perform optimally when they are owed a total of N4 trillion?” Adelabu questioned. “How can they pay for gas, maintain turbines, and staff their operations under such financial strain?”
He acknowledged that the government could no longer sustain the current subsidy model due to rising electricity consumption and the sector’s liquidity issues.
While no tariff increases were promised, Adelabu emphasized the need to revisit the current tariff structure to improve the sector’s performance.
The Minister also expressed concern over the lack of investment in DisCos’ distribution networks, noting that customer migration to higher tariff bands has not met expectations due to insufficient infrastructure investment.
He suggested that the government would soon introduce a new intervention model focused on helping those most in need.
What Next?
The Government is now prepared to regularise electricity tariffs in a bid to address disparities in the current billing system as well as encourage investment in the power sector.
Adelabu, made this known at the ongoing public presentation of the National Integrated Electricity Policy and Nigeria Integrated Resource Plan on Thursday in Abuja.
He said the government is considering this option over the slow pace of migration to Band A customers, which he attributed to the reluctance of Distribution Companies to make the necessary investments.
Under the current structure, customers in Band B, who enjoy 18 to 17 hours of electricity supply, pay N63 per kilowatt-hour, while those in Band A, with only two hours more of supply, are charged N209 per kilowatt-hour.
Adelabu described this as “unfair” and stressed the need for a regularisation of the tariffs to create a more balanced and equitable pricing system.
The minister said, “We will look at the tariff again. I am not saying that we’re going to increase the tariff before I am misquoted.
“We are going to look at it and see how we can improve upon our modest achievement of last year, not only to ensure that we grow the sector that we need but also to ensure that we can invest more in revamping all these dilapidated infrastructures.”
“The migration to Band A should have been faster, but we found out that the DisCos refuse to invest. They have refused to invest in this sector.
“A lot of investment is required for us to achieve an accelerated migration of lower-band customers into Band A. It is taking a lot of time.”
In response to this, the government is considering restructuring the tariff bands, reducing the current wide gap between them.
A new system, proposed to encompass Bands A, B, and C, would address these inequalities.
“The gap between the Band A tariffs and Bands B, C, D, and E is just too wide,” he said. “We believe it’s not fair. It is not just, and we must be able to carry out some level of regularisation.”
According to him, the government is committed to reviewing the existing tariff structure, although he was quick to clarify that the review does not imply an imminent increase in rates.
DisCos Restructuring Option
The Government is also mulling restructuring the DisCos, citing unwillingness of players to invest in the sector.
Adelabu, said the DisCos have continued to perform below expectations financially and the poor fiscal health of DisCos is affecting their ability to attract finance from banks.
“This is why we are going to focus on the DisCos this year and carry out a lot of restructuring. They are not ready to make more investments, and their balance sheets are not healthy to even attract debts from the finance sector,” he said.
The Minister said that none of the DisCos has attempted to adopt franchising of some underperforming feeders, even after being advised to do so.
“No one has even attempted it. So, do we need to announce a minimum capital for the DisCos like banks do regularly and give them more timeline within which this capital will be proxied? Can we compel or mandate them to even franchise some underperforming feeders, which we expect them to invest in, which they have not invested?
Adelabu also disclosed plans to regularise the electricity tariffs being paid by customers, stating that the move will address the significant disparity in tariffs between different consumer bands.
He explained that the current tariff structure is unfair, with consumers in Band B paying N63 per kilowatt-hour for 17-18 hours of electricity supply, while those in Band A pay N209 per kilowatt-hour for 20 hours of supply.
Nigeria’s power sector has remained under-funded since the privatisation of late 2013. About 7.3 million electricity customers are metered, according to the Nigerian Electricity Regulatory Commission (NERC). Power cuts and grid collapse characterise the sector.
Adelabu said any adjustments to the tariff structure will not exceed the current Band A rate. Instead, the goal is to regularise the tariffs across different bands, ensuring a more equitable and sustainable system.
“We will look at the tariff again. I am not saying that we are going to increase the tariff (before I am misquoted). We are going to look at the tariffs and see how we can improve upon our modest achievement of last year, not only to ensure that we grow the sector but to also ensure that we are able to invest more in revamping all the dilapidated infrastructures.
“We thought the migration to Band A would be faster than what we are having now, but we found out that the DisCos have refused to invest in this sector. A lot of investment is required for us to achieve an accelerated migration of lower-band customers into Band-A.
“We will look at the other bands, which are B to E. Let’s pull up the bands to A, B, and C, because the gap between the Band A tariffs and the Band B, B and C, D, and E is just too wide. And B that’s enjoying 17 or 18 hours is paying N63 while the one that’s enjoying just 20 hours, just two hours difference of supply, is paying N209.
“So we believe it’s not fair. It is not just, and we must be able to carry out some level of regularisation. So, this is not a tariff increase. Our tariff will never go beyond what a B and A are paying. But what we want to do is to regularise the tariff,” Adelabu said