The Federal Government (FG) is set to spend N2.36 trillion on electricity subsidies for low-income consumers in 2025, even as plans to implement cost-reflective tariffs take shape.
Subsidy Burden and Financial Sustainability
According to the latest Multi-Year Tariff Order released by the Nigerian Electricity Regulatory Commission (NERC), the government incurred N178.03 billion in electricity subsidies for January 2025, despite limited budgetary allocations. This marks a 10.1% decrease from N197.91 billion in December 2024.
A review of tariff indices showed that the weighted average cost-reflective tariff dropped from N213.85/kWh in December 2024 to N116.75/kWh in January 2025.
Factors influencing the subsidy calculations include:
- Exchange Rate: Pegged at N1,556 per dollar
- Inflation Rate: Increased to 34.60%
- Gas-to-Power Prices: Maintained at $2.42/MMBTU
Despite the reduction in January’s subsidy cost, the government continues to face growing financial strain in sustaining the power sector.
Subsidy Distribution Across DISCOs
The January 2025 subsidy breakdown shows varying allocations to different electricity distribution companies (DISCOs):
- Abuja DISCO – N28.38bn
- Ikeja DISCO – N27.2bn
- Eko DISCO – N22.88bn
- Ibadan DISCO – N24.03bn
- Port Harcourt DISCO – N14.59bn
- Enugu DISCO – N15.38bn
- Benin DISCO – N15.75bn
- Kaduna DISCO – N14.13bn
- Jos DISCO – N11.84bn
- Yobe DISCO – N7.77bn
Meanwhile, a government document revealed that in 2024, only N450bn of the N2.37tn incurred subsidy was cash-backed, leaving an outstanding N1.92tn.
Projected Electricity Tariff Shortfall for 2025
With no anticipated funding to cover tariff shortfalls, the power sector faces a projected subsidy gap of N2.36tn in 2025.
A government report presented at the Energy Compact Summit in Tanzania outlined plans to introduce a $600m annual subsidy from 2025 to 2027 to support electricity consumers. The approach aims to gradually phase out subsidies while ensuring protection for low-income households.
By 2027, the government plans to transition to a social tariff model that will protect vulnerable consumers while implementing a fully cost-reflective tariff structure.
Challenges and Consumer Reactions
The path to electricity reform remains challenging due to:
- Funding shortages in the power sector
- Infrastructure deficits affecting electricity generation and distribution
- Consumer resistance to tariff hikes due to unreliable power supply
Consumer advocacy groups have opposed tariff increases without measurable improvements in power supply and full metering coverage.
As Nigeria grapples with balancing subsidy reduction, tariff adjustments, and energy sector reforms, stakeholders continue to debate the best path forward for a sustainable power sector.
