NEWS

STATE GOVERNORS MOVE TO PHASE OUT ELECTRICITY SUBSIDY, IMPLEMENT NEW TARIFF STRUCTURE

Governors in Nigeria are preparing to phase out electricity subsidy, indicate interest in managing their individual power markets in line with their regulations.

This plan is contained in a document communicated to the Federal Ministry of Power by the Nigeria Governors' Forum titled 'Development of the National Integrated Electricity Policy and Strategic Implementation Plan Policy Recommendations by State Governments to the Federal Ministry of Power,' the Governors expressed intention to introduce varying electricity tariffs in their domains.

Their suggestion followed approval of the Electricity Act 2023. The Electricity Act 2023 is a national regulation that replaces the Electric Power Sector Reform Act, serving as the current legal structure for the Nigeria Electricity Supply Industry.

The Act introduced complex electricity market structure consisting of a central wholesale federal market and decentralized retail sub-national markets. These two market segments are intricately connected through a network of policies and regulations.

The Nigeria Governors' Forum said, “Electricity is a commodity and a product that must be paid for by consumers. The states believe electricity subsidy and other forms of financial interventions in the power sector by the Federal Government over the last 15 years have been inefficient and ineffective so far.

“Rather than improve the quality and reliability of service, electricity subsidies in the sector have been applied to cover inefficient costs and lack of service by Discos, TCN, Gencos and gas producers across the NESI.

“Moreover, the so-called electricity subsidies benefit only customers who are connected to the national grid and enjoy some form of supply reliability. Millions of households, particularly in underserved and unserved communities, pay more than twice the average true cost of on-grid supply.”

“To this end, states recommend that wholesale and retail electricity subsidies to customers and across the NESI value chain are reduced and eventually eliminated over time, except for pre-defined customer categories or in line with national economic growth initiatives.

“Where electricity subsidies are deemed necessary, the states propose a cost of service analysis which will be conducted by the state to determine the cost of supply and arising electricity subsidies for each state.

“Where electricity subsidies continue to be implemented as a specific policy of the Federal Government, it must provide funding for the subsidies before implementation.”

“The FMoP and NERC should also ensure that there should be no discrimination in implementing electricity subsidies, against states and regions, especially states and regions with more efficient electricity markets.

“It should also be noted that continuing electricity subsidies may undermine the viability and sustainability of state electricity markets.

“Thus, the Federal Government and states should collaborate in determining how any subsidy by the Federal Government is applied within a state electricity market. In this regard, the states propose a joint framework with the Federal Government for administering future electricity subsidies in a state electricity market.”

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