N2.9tr electricity subsidy unsustainable, says FG
The Federal Government on Friday insisted that the payment of N2.9trillion for electricity subsidy in 2024 is no longer sustainable.
The Minister of Power, Chief Adebayo Adelabu stated this while giving explanations on the April 2024 Supplementary Multi-Year Tariff Order (MYTO) that the Nigerian Electricity Regulatory Commission (NERC) released on Wednesday .
He spoke at the 4th serie of the Ministerial Press Briefing in Abuja.
Adelabu noted that it will be insensitive to compel the government to keep paying the unsustainable subsidy.
His words: “So, it will be very insensitive on our part to compel government to continue to subsidize at that rate of almost N3trillion for the power sector alone. We just have to be realistic and considerate.”
According to him, the fund is about 67% of the cost of power production in the country.
He also noted that the cost is about 10% of the national budget that could be channelled towards development of infrastructure in health, education and the others.
He said, “And I must tell you that as at today, before the introduction of the tariff increase, government is subsidizing nothing less than 67% of the cost of producing, transmitting, and distributing electricity in Nigeria.
” At the current exchange rate this is going to translate into N2.9trillion for 2024. This is more than 10% of the national budget.”
Earlier, he explained that the primary purpose of investing in a business is operational sustainability to recover cost and also make profit.
Adelabu said the possibility of remaining in business is always doubtful when investors cannot recover their cost.
He described the tariff for band A customers of the Nigerian Electricity Supply Industry (NESI), as pro-poor because it affects only 15% of the customers.
The Minister said the band A tariff is still 50% cheaper for the customers than what they spend on alternative power generation with the Premium Motor Spirit (PMS) petrol and the Automotive Gas Oil (AGO) diesel.
He said: “We know ourselves. 90% of the customers that fall into this band, if they take light they will not hesitate to switch on their generators.
“1000 litres of diesel and petrol generators. They even pay for may expensive alternatives.”
According to him, other customers in the industry still enjoy the subsidy on electricity.
He urged the band A customers, whom their supply is no longer cheap to adopt frugality, and efficient consumption management.
“It is not about what you pay per kilowatt hour. It is about consumption. We have to be efficient in managing our consumption too,” he advised.
The Minister added that “So, I enjoin us to be very prudent in consuming electricity, it is no longer cheap for band A. But this policy is pro -poor like the EVC put it. It is pro-poor.
” The high end people, they are the ones that are enjoying the subsiding more than others because they consume more.
Read Also: FULL LIST: Parts of Lagos affected by increased electricity tariffs
” This is because what they are enjoying is more than what the poor are enjoying. We are saying no, let them pay the right price, and let the poor breathe too.”
Adelabu described the tariff adjustment for the Band A customers as a pilot project, noting that there must be proof of consent.
He explained that the tariff was based on capacity of the operators to supply the minimum of 20 hours of electricity in a day.
He added that where the DisCos cannot cope with the 20 hours supply, the customers will be downgraded to a lower band.
Adelabu said that under the new rate, the NERC must ensure that the non-complying operators are punished.
He pledged that the ministry under his watch must protect the consumer to ensure that their payment is proportional to the quality of service the operators deliver to them.
The Minister said: “We also must ensure that the regulators are independent and there is consequent management for non-compliance by the operators in terms of punishment meted out to a non-complying power sector player being it a distribution company, the transmission company or any of the generating companies.
“Then last one we must achieve as the ministry is consumer protection and value for money. Whatever consumer pays for, there must be commensurate value for it.”
He said the Zungeru hydroelectric power plant has been completed and installed.
According to him, the concessioning process is also completed while the conscessionaire has made his payment.
He added that “The official handing over of this plant has been done to the conscessionaire which is Mainstream Energy who are the current operators of Kainji and Jebba hydro power plants.”
He revealed that the present stage is the technical handover by the Chinese consultant that built Zungeru hydroelectric power to the concessionaire.
He explained that there is a one year defect liability period when the contractors need to be on the project site to ensure the fixing of all emanating faults.
He said “testing of generation of power started yesterday (Thursday) and it will last for about one or two weeks.”
He insisted that the plant has the capacity of evacuating power to the national grid.
Adelabu recalled that the Covid -19 pandemic delayed the Siemens project.
He said the pilot stage of the project is almost completed.
The minister said “we have installed three out of 10 mobile substations.”
According to him, the ministry has strengthened 14 power substations and installed 14 kilometer power line.
He revealed that the Federal Government will upgrade 6,000 transformers.
Also speaking at the event, Minister of Information and Orientation, Mohammed Idris, noted that despite upward review of electricity tariff, the Federal Government still subsidises power by 85%.
He said the misconception around the policy was understandable.
Idris explained that the review was a strategic step toward a more sustainable, efficient, and equitable electricity sector for the country.
He said, “A few days ago, the Federal Government unveiled a progressive policy in the power sector, which aims to boost sufficiency in power supply for all Nigerians.
“The most important aspect of the policy is that the Tinubu administration is sustaining electricity subsidy to 85% of Nigerian consumers, which re-justifies its credential as a Pro-People democratic government while effecting electricity tariff increment to only 15% of the electricity consumer population.
“Misconceptions and concerns around the tariff review are understandable. However, let me reassure every Nigerian that this review is a strategic step toward a more sustainable, efficient, and equitable electricity sector. It lays the groundwork for significant improvements in service delivery, infrastructure development, and economic prosperity.
“Our focus must therefore remain steadfast on ensuring that the electricity sector’s transformation benefits all Nigerians, supports our industries, and propels our nation towards its bright future.”
The minister also listed other steps taking by the current administration to improve the power sector including the recent signing into law the Electricity Act (Amendment) Bill, 2024, by President Bola Tinubu.
He said the new law will further strengthen the governance structure in the Power Sector and mandates the GENCOs to set aside 5% of their actual annual operating expenditure from the preceding year for the development of the host communities.
The Act, he further said will also removed Electricity from the Exclusive list to empower state government to generate and distribute electricity to residents.
The Minister therefore assured Nigerians that the government will not shy away from engaging the general public on all its programmes and policies.
He said, “Let me restate our commitment to transparency in public communication as a deliberate policy to build trust between the government and its citizens. This is paramount because transparency plays a crucial role in fostering and reinforcing that trust.
“We understand that transparency is not just a principle to be upheld but a foundation for good governance. Therefore, we are committed to ensuring that our communication channels remain open, accessible, and informative while we strive to provide accurate, timely, and relevant information to the public on matters of governance, policy, and programme. “
He added, “Since our last meeting with you, some salient achievements have taken place in our economy as we are all witnesses to the fact that through the implementation of some macroeconomic reforms, our foreign exchange market has stabilized and our beloved Naira is getting stronger daily.
“The recent establishment of the Presidential Economic Coordination Council and the Economic Management Team Emergency Task Force underscores Mr. President’s commitment to fostering a unified strategy for economic management that leverages the expertise and insights of key stakeholders from both the public and private sectors. These teams will serve as platforms for robust discussions, analysis, and decision-making to drive sustainable economic growth, job creation, and prosperity for all Nigerians.
“The launch of the Renewed Hope Infrastructure Development Fund (RHIDF) aims to raise about N20 trillion for investment in critical sectors such as the real sector of the economy, transport, social services, agriculture, and ICT among others.
“The Fund seeks to support projects that promote growth, enhance local value-addition, create employment opportunities, and promote exports.
“For emphasis, the projects to be targeted by the Fund include the construction of the Lagos-Calabar Coastal highway, which kick-started recently, the Sokoto-Badagry Expressway, Lagos-Kano Expressway, the Eastern Rail Lines and the modernization of ports and aviation facilities across the country.
“To expand access to education as a potent weapon against poverty, the President has signed the Student Loans (Access to Higher Education) Act (Repeal and Re-Enactment) bill, 2015, into law. This groundbreaking initiative goes beyond mere legislation – it is a revolutionary approach to set up a permanent structure that would support the pursuit of education by our youths.”
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