Federal Government Pays ₦205 Billion in Electricity Subsidies as Discos' Remittance Shortfall Persists

The Nigerian government paid ₦205 billion in electricity subsidies in Q3 2023, but Discos failed to remit ₦50 billion, highlighting the challenges in the power sector. Addressing inefficiencies and ensuring cost-reflective tariffs are crucial for the sector's financial viability.

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Nasiru Eneji Abdulrasheed
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Federal Government Pays ₦205 Billion in Electricity Subsidies as Discos' Remittance Shortfall Persists

Federal Government Pays ₦205 Billion in Electricity Subsidies as Discos' Remittance Shortfall Persists

The Nigerian Electricity Regulatory Commission (NERC) has reported that the Federal Government paid approximately ₦205 billion in electricity subsidies during the third quarter of 2023. This figure represents a substantial increase of ₦69 billion compared to the previous quarter. The surge in subsidy payments is largely attributed to the government's policy of harmonizing exchange rates in the absence of cost-reflective tariffs across all electricity distribution companies (Discos).

In Q3 2023, Discos were only expected to cover 45% of the total invoice received from NERC, down from their usual Minimum Remittance Obligation (MRO). The government undertook to cover the resultant gap between the cost-reflective and allowed tariff in the form of tariff shortfall funding . This funding is applied to the Nigerian Bulk Electricity Trading (NBET) invoices that are to be paid by Discos.

Despite the increase in subsidy payments, Discos' remittance performance witnessed a decline. The NERC report revealed that Discos failed to remit approximately ₦50 billion to the power sector in the third quarter of 2023. The cumulative upstream invoice payable by Discos amounted to about ₦208 billion, out of which only ₦158 billion was remitted, resulting in a remittance performance of 74%, a 25% decrease compared to the previous quarter.

The total revenue collected by all Discos in Q3 2023 was about ₦268 billion out of the ₦349 billion billed to customers, representing a collection efficiency of 76%. NERC emphasized the need for Discos to install more meters and optimize their energy delivery to improve collections and ensure the flow of funds to upstream market participants.

Why this matters: The persistent shortfall in Discos' remittances and the increasing burden of electricity subsidies on the Federal Government highlight the challenges faced by Nigeria's power sector. The lack of cost-reflective tariffs and inefficiencies in the electricity supply chain continue to strain the government's finances and hinder the sector's growth.

The NERC report emphasizes the importance of prompt payment of upstream invoices for securing the availability of generation and transmission capacities. It also calls for Discos to enhance their collection efficiency through metering frameworks and optimization of energy delivery. Addressing these issues is crucial for the financial viability and sustainability of Nigeria's power sector.

Key Takeaways

  • FG paid ₦205 billion in electricity subsidies in Q3 2023, up ₦69 billion.
  • Discos failed to remit ₦50 billion to the power sector in Q3 2023.
  • Discos' remittance performance declined to 74%, down 25% from previous quarter.
  • Discos' collection efficiency was 76% of ₦349 billion billed to customers.
  • Lack of cost-reflective tariffs and inefficiencies strain power sector's finances.