Nigeria’s Electricity Sector Under Strain: Soaring Subsidies, Mounting Debts, and Policy Conflicts
The Power Struggle Behind the Scenes
Nigeria’s power sector, long plagued by structural inefficiencies and chronic underperformance, now finds itself at a critical crossroads. The nation’s electricity subsidy bill has skyrocketed to an alarming ₦1.94 trillion in 2024, a sharp increase from ₦618 billion in 2023—representing a staggering 219% jump. This exponential rise has exposed deep-seated problems in the country’s energy market, further complicated by macroeconomic instability and conflicting policy directions.
While the federal government struggles to maintain an unsustainable subsidy regime, 36 state governors have united to reject a proposed amendment to the Electricity Act, signaling rising tensions over control and fiscal responsibility in the energy sector. At the same time, industry stakeholders warn that unless urgent reforms are undertaken, Nigeria’s electricity sector may collapse under the weight of its own inefficiencies.
The Rising Burden of Subsidies: From Billions to Trillions
The Nigerian Electricity Regulatory Commission (NERC), in its latest market report, revealed that the federal government failed to meet its financial obligations to the power sector. Of the ₦1.94 trillion needed to subsidize electricity in 2024, only ₦371 million was paid—a mere 0.019% of the total. This shortfall has left a massive funding gap across the value chain, impacting generation, transmission, and distribution companies.
The surge in subsidies stems primarily from the widening gap between the actual cost of electricity supply and the amount consumers are billed. Due to the removal of petrol subsidies and the rapid devaluation of the naira, electricity generation and operational costs have risen sharply. However, in a bid to cushion the economic impact on citizens, the federal government has delayed implementing cost-reflective tariffs for most customer bands.
According to NERC, tariffs charged to electricity consumers fell significantly below the cost of supply in all but one customer category—Band A, which enjoys 20–24 hours of power supply daily. In contrast, Bands B to E, which comprise the majority of Nigeria’s electricity consumers, continue to pay much lower rates despite the increasing cost of generation and distribution.
The Band A Tariff Adjustment: A Partial Reform?
In April 2024, NERC approved a new electricity tariff of ₦225/kWh for Band A customers, reflecting the actual cost of generating power under current economic conditions. While this move was applauded by market analysts as a step toward tariff reform, it only affects about 15% of all electricity consumers nationwide.
The government, however, opted to retain subsidies for Bands B to E, citing the need to protect vulnerable populations from further economic hardship. But this decision has come at a steep price—creating a massive financial shortfall in the Nigerian power market and threatening the stability of the entire sector.
In its quarterly market report for Q4 2023, NERC confirmed that only ₦371 million of the ₦1.935 trillion subsidy required for the year had been remitted by the federal government. This leaves electricity distribution companies (DisCos) and generation companies (GenCos) scrambling to cover operational costs with no assurance of government support.
Who Got What? DisCos and the Subsidy Breakdown
A deeper look at the subsidy allocations reveals disparities in how support was distributed among DisCos. Abuja Electricity Distribution Company received the highest share, with ₦232 billion in unpaid subsidies. Ikeja Electric followed with ₦210 billion, while Ibadan Electricity Distribution Company was allocated ₦180 billion.
These figures raise important questions about equity, accountability, and the viability of the current subsidy model. Industry stakeholders argue that unless the federal government fully discloses its criteria for allocating subsidies—and commits to paying them—the power sector will continue to hemorrhage financially.
The lack of liquidity has already had cascading effects. DisCos are unable to remit full payments to the Nigerian Bulk Electricity Trading Company (NBET) and the Market Operator (MO). In turn, GenCos are not receiving enough revenue to maintain operations, upgrade infrastructure, or invest in expanding capacity. The result is a downward spiral of inefficiency, underperformance, and widespread power outages.
The Generating Companies’ Debt Crisis
Electricity generation companies are bearing the brunt of Nigeria’s subsidy quagmire. According to the Association of Power Generation Companies (APGC), GenCos are currently owed nearly ₦5 trillion in unpaid invoices. These debts span several years and are accumulating faster than they can be repaid.
Dr. Joy Ogaji, Executive Secretary of APGC, warned that many GenCos are on the brink of collapse. Without prompt intervention from the government, including debt restructuring and liquidity injection, she said, Nigeria risks total blackout in the near future.
The bulk of these debts are owed by NBET, the government-owned intermediary responsible for purchasing electricity from GenCos and selling to DisCos. However, NBET’s ability to meet its financial obligations is compromised by the DisCos’ poor remittance record and the federal government’s failure to fund subsidy shortfalls.
In effect, the entire power value chain is trapped in a vicious cycle of debt and non-performance—fuelled by an unrealistic subsidy policy and the government’s reluctance to enforce cost-reflective tariffs across all customer categories.
Expert View: The Sector is on Life Support
Energy experts have been vocal about the unsustainability of Nigeria’s current electricity model. Bode Fadipe, a former General Manager of Corporate Communications at the Abuja Electricity Distribution Company, likened the subsidy regime to “economic suicide.”
According to Fadipe, the sharp rise in dollar-denominated costs—exacerbated by the floating of the naira—has rendered the current pricing model obsolete. “The cost of gas, equipment, and technical services has tripled. Yet the government insists on retaining a low-tariff regime for political reasons. This is simply not sustainable,” he said.
He added that the power sector needs a complete overhaul if Nigeria is to have any hope of achieving reliable electricity supply in the next 20 years. This includes revising the tariff structure, enforcing accountability among DisCos, and opening the market to private investment under a more transparent regulatory framework.
State Governors Push Back: Electricity Act Amendment Rejected
In a new twist, all 36 state governors have rejected a proposed amendment to the Electricity Act 2023. The amendment, which is currently before the National Assembly, seeks to expand the powers of the Nigerian Electricity Regulatory Commission (NERC) over electricity generation, transmission, and distribution across states.
Under the current law, passed in 2023, states are allowed to establish their own electricity markets, including regulatory commissions and independent operators. This was a significant step toward decentralizing Nigeria’s power sector and encouraging sub-national innovation.
However, the proposed amendment would effectively re-centralize key powers—something the governors say undermines the principles of true federalism. In a letter signed by the Chairman of the Nigeria Governors’ Forum (NGF), Governor AbdulRahman AbdulRazaq of Kwara State, the governors described the amendment as “a blatant attempt to hijack state electricity markets.”
They argued that giving NERC concurrent jurisdiction over state electricity markets would lead to regulatory conflicts, discourage private investment, and stifle innovation. The governors have urged the National Assembly to discard the amendment and respect the autonomy granted to states under the existing law.
A Sector at the Edge: What’s the Way Forward?
Nigeria’s power sector is in urgent need of reform. The rising cost of subsidies, growing debt obligations, and policy disagreements between federal and state governments are symptoms of a larger crisis—one rooted in poor planning, regulatory uncertainty, and political interference.
To move forward, stakeholders agree on several key steps:
- Implement Cost-Reflective Tariffs Across All Bands: While politically sensitive, this is the only way to ensure long-term sustainability. Targeted subsidies can be provided to vulnerable groups via social safety nets, rather than distorting the entire tariff structure.
- Clear Outstanding Debts: The federal government must work with NBET and the Central Bank to develop a structured repayment plan for the ₦5 trillion owed to GenCos. This could include bond issuance, debt buy-backs, or negotiated settlements.
- Strengthen Regulatory Independence: NERC must be empowered to operate without political interference, ensuring that electricity pricing, licensing, and market operations are governed by economic and technical principles.
- Support State Electricity Markets: States should be encouraged to develop independent electricity grids and regulatory agencies tailored to local realities. This decentralization could drive competition, innovation, and investment.
- Encourage Private Sector Participation: The federal government must create a clear and stable investment environment by reducing regulatory bottlenecks and offering incentives for independent power producers (IPPs).
- Invest in Infrastructure: Transmission and distribution networks must be upgraded to reduce technical losses and improve supply reliability. This requires both public and private capital, guided by transparent project evaluation frameworks.
- Expand Renewable Energy: Nigeria has immense solar, wind, and hydro potential. Scaling renewable energy projects—especially in underserved rural areas—can ease pressure on the national grid and reduce reliance on gas-based generation.
A Sector at the Breaking Point
Nigeria’s electricity sector is no stranger to crisis, but the current situation marks a new low. With over ₦1.94 trillion in unpaid subsidies, nearly ₦5 trillion in GenCo debt, and increasing pushback from state governors over regulatory overreach, the system is buckling under pressure.
The road ahead is not easy. Reforms will be painful, and political resistance will be fierce. But unless Nigeria confronts these challenges head-on—with transparency, courage, and a long-term vision—the dream of uninterrupted, affordable, and accessible electricity for all will remain just that—a dream.
The question now is: Will Nigeria act before it’s too late?