Nigeria, struggling to raise funding for its 2024 budget may borrow to finance electricity subsidy as the Nigerian Electricity Regulatory Company (NERC) yesterday released a new tariff template, showing over N1.6 trillion shortfall.
There are also indications that the liquidity crisis rocking the power sector in Nigeria may go from bad to worse over the development, which may undermine loan repayment to the apex and commercial banks in the country.
Across the eleven distribution companies, the administration of President Bola Tinubu in what can be described as a reversal of the Service Based Tariff (SBT), which was initially used under former President Muhammadu Buhari, will see the federation bear the burden of about N1.6 trillion subsidy.
Besides, the eleven distribution companies, according to their various orders from NERC would operate at loss in the company years as the gap between their required tariff and actual tariff maintained a wide margin.
While the government is taking up the N1.6 trillion burden, the Nigerian Bulk Electricity Trading Company’s budget in the 2024 appropriations only showed a subsidy plan of N450 billion, meaning that the government may have to raise the funding locally or from the international market amidst high borrowing profile.
Under the Abuja Electricity Distribution Company, consumers would have been paying between N152 and N73 kilowatts per hour, but the Tinubu regime only allowed them to pay between N81 and N34 kilowatts per hour.
AEDC is meant to spend N204 billion as operating expenses for the next four years, N25 billion on metering through the period and N46.92 billion as capital expenditure for the four years period.
While NERC’s approved yearly revenue requirement of the company stood at N485.11 billion, under a cost reflective tariff, the company would only make N120.88 billion but the prevailing tariff structure can only allow the organisation to raise N63.4 billion while the subsidy fragment would stand at N58.12 billion.
At the Benin Electricity Distribution Plc, consumers were meant to pay between N137 and N100 for every kilowatt hour, but they can only charge between N72 and N41 per kilowatt hour, meaning that about N65 is being paid as subsidy on every kilowatt hour people residing in some parts of the South South and South West are consuming.
Meanwhile, in the next four years, BEDC would spend N122.64 billion as operating expenses, N25 billion on metering and N14.28 billion on other capital expenditure. The company’s required yearly revenue stands at N269 billion. They will only be able to make N126 billion under a cost reflective tariff. Given the allowed tariff, the company would make N60 billion and expect N66 billion from Tinubu as tariff shortfall.
In Enugu Electricity Distribution Company (EEDC) which covers all the Southeast states, the real cost reflective tariff is between N147 and N96 per kilowatt depending on the tariff plan, which is spread between band A to E, but the allowed tariff, which is what consumers would be paying is N71 and N36 per kilowatt hour. This means that the Federal Government would pay between N76 and N35 on every kilowatt of electricity consumed in Enugu, Ebony, Anambra, Imo and Abia.
NERC has asked the EEDC to spend N25 billion on providing 260,000 prepaid meters to consumers in the region in the next four years.
The company would spend N12.6 billion as operating expenses in four years. The yearly revenue requirement is N241 billion, under cost reflective tariff, the company would make N128.49 billion but under the prevailing scenario, it would make N59 billion and expect N69 billion from the government.
Under the Eko Electricity Distribution Company, consumers were meant to pay between N125 and N71 per kilowatt hour, but the allowed tariff stands between N68 and N32 per kilowatt hour. The subsidy payment across the different bands of A to E stands at about N57 on every kilowatt hour.
The company, according to NERC’s order, would spend about N180 billion in the next four years as operating expenses. N25 billion would be expended on metering under that period and N66.36 billion would be on capital investment.
Although the yearly revenue requirement of the company stands at N412.41 billion, it can only generate N115 billion under cost reflective situations. With the current arrangement, the company would generate N59.50 billion and expect N55.30 billion from the government as tariff shortfall.
As of the last count, the power sector indebted to Deposit Money Banks (DMBs) N836.08 billion as the sector in owing the Central Bank of Nigeria (CBN) about N1.3 trillion in series of intervention. This is apart from the indebtedness of the sector to the World Bank and other development funders.
Already, NERC has expressed fear over the sustainability of the subsidy regime, stressing that the ability of the government to maintain the liquidity issue in the sector is critical.
Chairman of NERC, Sanusi Garba, speaking to journalists in Abuja, said: “If you look at the order, you will see that tariffs are not going up, but in the order, you will see what it is considered to be cost reflective tariffs. You can also see in the tariff order, the amount of subsidy the government will be providing to cover the gap between what they should charge and what they’re allowed to charge.”
Garba raised fear over the state of the market, adding that the regulator would intervene should the market be heading for collapse.
NERC had earlier said the liquidity crisis in the sector was at the verge of crippling over 20 of the 27 electricity plants on the Nigerian electricity grid even as the country currently struggles to generate 4,000 megawatts of electricity.
Managing Director of Mainstream Energy Solutions, Audu Lamu said the subsidy is not sustainable.
He noted that the development is worrisome for investors, adding that subsidy is “not enough for investors’ confidence because it does not completely remove the liquidity crisis in the sector.”
According to him, Considering the huge outstanding receivables by Gencos, which is a contingent liability on government, continued subsidy means generation companies would still not be paid their invoices in full and when due.
“We are all aware of the funding challenges experienced by the government. The distribution companies’ inefficiencies would continue to be covered also by this action during which efforts to improve on ATC&C will be lacking as usual,” Lamu said.
President of Nigerian Economic Society and energy expert at the University of Ibadan, Prof Adeola Adenikinju said subsidy won’t solve the challenges in the sector.
“Government has fiscal challenges, and the fiscal space is limited. Borrowing option is now limited because government debt has gone up significantly and we are reaching a threshold of sustainability of the debt. The consumer must bear the cost and the burden,” Adenikinju said.
According to him, that option remains the only feasible and sustainable solution, adding that the N1.6 trillion may only postpone the evil days.
Adenikinju said the sector must find a way to reduce the losses and the inefficiencies in the sector which are being passed to the public.
In the 2024 budget, the federal government earmarked N40 billion to settle outstanding electricity bills owed by ministries, departments, and agencies (MDAs). While the government is canvassing for a good power sector, the indebtedness of its agencies to the sector hovers around N100 billion.