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FG to Allocate $600 Million Annually for Electricity Subsidy from 2025

Published by admin on February 2nd, 2025.

FG to Allocate $600 Million Annually for Electricity Subsidy from 2025

The Federal Government has revealed plans to implement a $600 million annual electricity subsidy for all customers starting in 2025 as part of its ongoing efforts to reform the nation’s power sector.

The subsidy, set to last until 2027, is designed to help bridge the gap between the cost-reflective tariffs and the regulated electricity rates, while the government works on addressing the metering deficit and strengthening the financial stability of power distribution companies.

According to Nigeria’s Energy Compact document, obtained by Sunday PUNCH, this initiative is a key component of the National Energy Compact and aligns with the country’s broader goals for electrification and clean energy transition. Nigeria, alongside several other African nations, presented its energy compact at a summit in Tanzania, focusing on innovative energy solutions.

However, the subsidy is intended to be a temporary measure, ensuring that electricity remains affordable while the government gradually moves towards full cost-reflective tariffs.

The document further explained that the subsidy could take various forms, such as a flat monthly subsidy for each electricity consumer or a subsidy on the first 50 kilowatt-hours of electricity used each month. This structure aims to address the regressive nature of previous subsidy systems, where wealthier households often benefitted disproportionately.

By 2027, the government plans to introduce a social tariff to protect low-income and vulnerable consumers once the full cost-reflective tariff system is in place.

The Energy Compact document outlines that the path toward full cost-reflectivity includes the $600 million subsidy annually from 2025 to 2027, while the metering gap is addressed, with the plan to eventually transition to full cost-reflective tariffs, except for the social tariff for vulnerable groups.

Another major focus of the reform is closing the metering gap, which currently affects approximately seven million unmetered electricity consumers. The government plans to install 1.5 million smart meters in 2025, 4 million in 2026, and 1.5 million in 2027.

Closing this gap is expected to reduce losses in the electricity sector, improve revenue collection, and align tariffs with actual consumption, reducing the future need for subsidies. The sector has faced financial challenges due to high technical and commercial losses, low tariff recovery, and liquidity issues.

Despite the efforts made under the Power Sector Recovery Programme, tariff shortfalls in 2023 reached ₦650 billion, with projections indicating that the deficit could exceed ₦2.2 trillion in 2024. The subsidy scheme aims to provide temporary relief while helping distribution companies meet their financial obligations to power generation companies and the Transmission company of Nigeria.