Nigeria’s power sector is grappling with a substantial debt burden, primarily stemming from unpaid subsidies owed to power generation companies (Gencos). Minister of Power, Adebayo Adelabu, revealed that the government owes Gencos approximately N4 trillion, a figure that threatens the operational stability of these companies and, consequently, the nation’s electricity supply. Half of this debt is a legacy from previous administrations, while the other half accrued during the 2024 fiscal year. The mounting debt prompted Gencos, under the aegis of the Association of Power Generation Companies (APGC), to issue a stern warning to the government, raising the specter of plant shutdowns due to a deepening liquidity crisis within the sector. The government’s inability to fully compensate Gencos for the electricity generated and consumed has significantly hampered their financial viability and raised concerns about the long-term sustainability of the power sector.
In response to this looming crisis, the government has announced plans to offset a significant portion of the debt, aiming to pay N2 trillion by the end of the current year. This payment strategy involves a combination of cash disbursements and the issuance of promissory notes. Minister Adelabu emphasized that discussions are ongoing with the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, to secure the necessary funds, either through budgetary allocations or guaranteed instruments like promissory notes. These notes are designed to be easily transferable to banks, allowing Gencos to access immediate cash injections to address their operational needs. This two-pronged approach aims to alleviate the immediate financial pressures on Gencos, preventing plant shutdowns and ensuring a continued supply of electricity to consumers.
The crux of the debt issue lies in the disparity between the actual cost of generating electricity and the tariffs paid by consumers. The minister explained that the average energy cost is around N170 per kilowatt-hour, while 85% of consumers pay only N60 per kilowatt-hour. This significant gap necessitates government subsidies to cover the difference, contributing to the accumulating debt. Historically, these subsidies have disproportionately benefited high-consuming households, a situation the government is now seeking to rectify. The government’s strategy involves restructuring the subsidy system to target low-consumption users, primarily poor households, ensuring that those most in need receive the intended financial support.
Recent tariff increases, while unpopular with some segments of the public, are a critical component of the government’s plan to address the financial challenges in the power sector. Minister Adelabu defended these adjustments as necessary to ensure the long-term viability of the sector. He argued that the current tariffs charged by the 11 Distribution Companies (DisCos) are not cost-reflective, hindering investment and impeding the sector’s growth. The new tariff structure aims to balance the need for financial stability with the imperative of affordability for consumers, particularly the most vulnerable. The government insists that it is committed to protecting the interests of Nigerian citizens while also acknowledging the economic realities of energy production and distribution.
The government has highlighted the positive impact of its tariff reforms, claiming they have generated an additional N700 billion in revenue for the market in 2024, a 70% increase compared to the N1 trillion generated in 2023. This increase is attributed to the cost-reflective tariff adjustment for Band A customers, demonstrating, according to Minister Adelabu, the potential for financial viability and improved service delivery to coexist. The government believes that a financially sound power sector will attract investments, leading to improved infrastructure and more reliable electricity supply. The minister also stressed the importance of balancing energy production with consumer demand, as generating companies incur losses when their output is not fully utilized.
While the government acknowledges public discontent over the tariff increases, it insists it is striking a balance between the interests of consumers and the financial health of the power sector. The government’s message is that energy costs are inherently high globally, and Nigeria is not exempt from this reality. The focus, therefore, is on restructuring subsidies to better target those most in need, ensuring affordability for vulnerable households while also promoting the financial stability of the power sector. The Minister reiterated the government’s commitment to holding DisCos accountable for their service obligations, with penalties for those failing to meet the required standards. This commitment to oversight aims to ensure that consumers receive the level of service they are paying for, promoting transparency and accountability within the power sector.
