N2.9tr spent on electricity subsidy not sustainable – Minister

The Minister of Power, Adebayo Adelabu, said yesterday, April 5, that this week’s hike in electricity tariff for Band A customers was informed by the realization that spending almost 10 per cent of the nation’s national budget on subsiding electricity alone was unsustainable

 

Adelabu stated this during a Ministerial Press Briefing organised by the Ministry of Information and National Orientation in Abuja. He added that the sector has been deprived of the required liquidity to keep it running in a sustainable manner, rendering it unattractive for investments.

 

Adelabu said the government is subsidising at least 67% of the cost of producing, transmitting, and distributing electricity.

 

He said the government refused to adopt 100% withdrawal of subsidy on electricity to avoid aggravation of the suffering of the generality of Nigerians. 

 

He explained that the new tariff regime was based on the capacity of the operators to supply the minimum of 20 hours of electricity in a day.

 

He added that where the distribution companies (DisCos) cannot cope with the 20 hours supply, the customers will be downgraded to a lower band. 

 

Adelabu said that under the new rate, the Nigerian Electricity Regulatory Commission (NERC) must ensure punishment for defaulting operators.

 

The minister said: “Two things and lessons we must achieve. Number one is achieving operational sustainability of operators on cost recovery. Anybody that goes into any business, the first intention is to recover cost, then if possible make some profit. 

 

“The moment you cannot cover your cost, the sustainability of such business is doubtful. It will be run aground. 

 

“But this cost recovery can either be through commercial pricing or a subsidized pricing. Commercial pricing is when the entire cost of producing power is transferred 100% plus the profit to the consumers of power. 

 

“Subsidized pricing regime is when the consumers are not allowed to pay the full cost of production and government has pledged to pay a portion of this on their behalf. That is the regime that we are in Nigeria.

 

“We are in a subsidy pricing regime, whereby government provides a large portion of the cost of producing, of transmitting, and of distributing power. 

 

“And I must tell you that as at today, before the introduction of the tariff increase, government is subsidizing nothing less than 67% of the cost of producing, transmitting, and distributing electricity in Nigeria. 

 

“At the current exchange rate this is going to translate into N2.9 trillion for 2024. This is more than 10% of the national budget.

 

“Power sector is just a single sector out of so many sectors that government has to attend to. We have works, we have housing, we have education, we have health, we have defence and so on and so forth that are all competing for this meager revenue from the government. 

 

“So, it will be very insensitive on our part to compel government to continue to subsidise at that rate of almost N3 trillion for the power sector alone. We just have to be realistic and considerate.”

 

Continuing, he said: “Electricity is no longer cheap for Band A. But this policy is pro-poor. It is pro-poor. The high- end people, they are the ones that are enjoying the subsidy more than others because they consume more.

 

“This is because what they are enjoying is more than what the poor are enjoying. We are saying no, let them pay the right price, and let the poor breathe too.” 

 

Adelabu said although the subsidised pricing regime was in transition to a full cost reflective tariff, the government would continue to protect the poor. 

 

“This tariff review is in conformity with our policy thrust of maintaining a subsidized pricing regime in the short run or the short term with a transition plan to achieve a full cost reflective tariff for over a period of, let us say three years,” he said. 

 

“I have mentioned it in a couple of media briefings that it is because of government sensitivity to the pains of our people that we will not make us migrate fully into a cost reflective tariff or to remove subsidy 100 per cent in the power sector like it was done in oil and gas sector. 

 

“We are not ready to aggravate the suffering of Nigerians any longer which is why we said it must be a journey rather than a destination and the journey starts from now on; that we should do a gradual migration from the subsidy regime to a full cost reflective regime and we must start with some customers.”