FG ready to spend $600m annually on electricity subsidy
The Federal Government has announced plans to introduce an annual electricity subsidy of $600m for all customers from 2025 as part of efforts to reform the power sector.
The subsidy, expected to last until 2027, aims to bridge the gap between cost-reflective tariffs and regulated electricity rates, while the government works towards eliminating the metering deficit and enhancing the financial sustainability of power distribution companies.
According to Nigeria’s Energy Compact document obtained by Sunday PUNCH, the initiative is part of the National Energy Compact and aligns with Nigeria’s broader electrification and clean energy transition plans.
Nigeria, alongside Côte d’Ivoire, Zambia, and nine other African countries, presented its energy compact at a two-day summit in Tanzania, with a focused on innovative energy solutions.
However, the policy is a temporary measure designed to ensure affordability while the government progressively moves towards full cost-reflective tariffs.
The document noted that the subsidy might take different forms, including a flat monthly subsidy per electricity consumer or a subsidy on the first 50 kilowatt-hours consumed each month.
This approach intends to reduce the regressivity of previous subsidies, where a significant portion benefited wealthier households.
By 2027, the government plans to introduce a social tariff to protect low-income and vulnerable customers once the broader cost-reflective framework is fully implemented.
The document noted the Federal Government’s trajectory to full cost-reflectivity included a “$600m per year subsidy in 2025 to 2027 (while metering gap is being closed), and then fully CRT except for social tariff for vulnerable customers.”
It added, “In order to decrease the regressivity of electricity subsidies, move towards a full cost reflective tariff system which includes a limited and uniform subsidy for all customers in 2025 while the metering gap is being closed. This scheme can take the form of a uniform monthly subsidy per customer, or the first 50 kWh per month being subsidised.”
A key focus of the reform is closing Nigeria’s metering gap, which currently stands at approximately seven million unmetered electricity end-users.
The government outlined a plan to install 1.5 million smart meters in 2025, four million in 2026, and 1.5 million in 2027.
The closure of the metering gap is expected to minimise losses in the sector, improve revenue collection efficiency, and ensure that tariffs are aligned with actual consumption, thereby reducing the need for future subsidies.
The electricity sector has struggled with financial sustainability due to high technical and commercial losses, low tariff recovery rates, and liquidity constraints.
Despite efforts under the Power Sector Recovery Programme, tariff shortfalls reached N650bn in 2023 and are expected to rise further in 2024, potentially exceeding N2.2tn.
The subsidy scheme would provide temporary relief while ensuring that distribution companies meet their financial obligations to power generation companies and the Transmission Company of Nigeria.
