• Oil & Gas - Energy
  • Updated: December 18, 2023

Subsidy: FG allocates N375.8bn, consumers pay N782.6bn Jan-Sep 2023

During the period of January to September this year, the Federal Government allocated a total of N375.8 billion for electricity subsidy, according to information gathered over the weekend.

Concurrently, power consumers paid N782.6 billion for the commodity within the same timeframe.

Data obtained from the Nigerian Electricity Regulatory Commission in Abuja revealed that the government subsidised electricity in each quarter of 2023.

It was further noted that power distribution companies billed electricity users a cumulative total of N1.06 trillion nationwide over the nine-month period.

However, despite widespread blackouts in many parts of Nigeria, only N782.6 billion was collected.

Regarding subsidy payments, it was noted that the Federal Government provided power subsidies of N36 billion in the first quarter of this year, N135.2 billion in the second, and N204.6 billion in the third. Since we are still in the fourth quarter of 2023, the figures for that quarter are not available.

In its recently issued third-quarter 2023 report, the NERC provided an explanation for the subsidy, stating that it was because cost-reflective tariffs were not in place.

It said, “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 NBET (Nigerian Bulk Electricity Trading Company) invoices that are to be paid by Discos.

“The amount to be covered by the Disco is based on the tariff that they are allowed to charge and set out as their Minimum Remittance Obligation 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 N204.59bn in 2023/Q3 (average of N68.20bn per month), which is an increase of N69.37bn (+51.3 percent) compared to the N135.23bn (average of N45.08bn per month) incurred in 2023/Q2; this increase is largely attributable to the government’s policy to harmonise exchange rates.

“The rise in the government’s subsidy obligation meant that in 2023/Q3, Discos were only expected to cover 45 percent of the total invoice received from NBET. For ease of administration of the subsidy, the MRO is limited to NBET only with the MO (Market Operator) being allowed to recover 100 percent of its revenue requirement from the Discos.”

The power regulator's three quarterly reports revealed that, in terms of electricity bill payments, customers paid N247.09bn, N267.86bn, and N267.61bn in the first, second, and third quarters of 2023, respectively. That sums up to N782.56 billion.

It was also noted that consumers received energy bills from Discos totaling N349.55 billion, N354.61 billion, and N359.38 billion during the first, second, and third quarters, respectively. Over the course of nine months, the total bill came to N1.06 trillion.

The NERC reported in its most recent third-quarter 2023 report that "out of ₦349.55bn billed to customers, the total revenue collected by all Discos in 2023/Q3 was ₦267.61bn.

“This translates to a collection efficiency of 76.56 percent, which represents an increase of +1.02 basic points when compared to 2023/Q2 (75.54 percent). The increase in collection efficiency can be attributed to the implementation of various collection campaigns for improved remittance by post-paid customers.”

On market remittance, it stated that “in 2023/Q3, the cumulative upstream invoice payable by Discos was ₦208.7bn, consisting of ₦167.4bn for generation costs from NBET and ₦41.3bn for transmission and administrative services by the Market Operator.

“Out of this amount, the Discos collectively remitted a total sum of ₦158.43bn  (₦124.53bn for NBET and ₦33.9bn for MO) with an outstanding balance of ₦50.27bn.

“This translates to a remittance performance of 75.91 percent in 2023/Q3, which is down by 19.30 basic points compared to the 95.21 percent recorded in 2023/Q2.”

The commission reported that, with regard to remittance by special and cross-border customers in 2023/Q3, none of the four foreign clients that Nigeria's power generation companies served in the sector paid the $11.16 million cumulative invoice that the MO had sent them for services rendered in 2023/Q3.

“Similarly, none of the 16 bilateral customers operating in the NESI (Nigeria Electricity Supply Industry) made any payment against the cumulative invoice of N2,814.68m issued to them by the MO for services rendered in 2023/Q3,” the NERC stated.

According to Chijioke James, President of the Nigerian Electricity Consumers Association, it was unclear whether the government was actually providing the electricity subsidies that were being claimed.

Additionally, he took issue with the government's comparisons, which seemed to imply that Nigerians were paying less for energy than many of their peers.

He said, “The subsidy that they say the government is paying is not clear. There is no clarity on how the government pays this subsidy. If we had a transparent process, everybody would see the volume of commitment that the government is making and would be able to appreciate it.

“We are more concerned about the transparent process of what constitutes the subsidy and the tariff regime. If we had a transparent process, we would do a cost-benefit analysis, all the stakeholders would know how to make sure that everybody is carried along in a fair and equitable.”

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