The federal government’s push to implement cost-reflective electricity tariffs is pitting the need for a sustainable power sector against the economic realities of millions of Nigerians.
The adoption of cost-reflective tariffs is aimed at fixing Nigeria’s chronic power shortages that have crimped economic growth.
On January 30, Olu Verheijen, special adviser to President Bola Tinubu on energy, said Nigeria’s power prices need to rise by about two-thirds (66 percent) for many customers to reflect the actual cost of electricity supply.
In another statement on February 3, Verheijen said her statement was “misrepresented.”
Verheijen clarified that after the 2024 Band A tariff increase, electricity tariffs now cover about 65 percent of the supply cost, while the government continues to subsidise the remaining 35 percent to bridge the gap.
Read also: Frequent electricity tariff hikes hurt manufacturing growth – MAN
She insisted that the “government is indeed committed to ensuring fairer pricing over the long term.”
While the above move is seen as necessary to revitalise the electricity market, it threatens to exacerbate living costs and push more Nigerians into energy poverty.
The human cost of tariff hikes
Bismarck Rewane, managing director of Financial Derivatives Company said if another tariff hike is implemented it will lead to high electricity costs from approximately N116.18 to N193.63 per kilowatt-hour.
High electricity costs will lead to “increasing living costs and potential energy poverty for many Nigerians,” Rewane said in a presentation at the Lagos Business School (LBS) Breakfast Session titled “Nigeria in 2025: Breakthrough or Fall through.”
For many Nigerians already battling economic hardship, this could push them further into energy poverty, limiting access to a basic necessity.
For families like that of Ngozi Uchenna, a single mother of three staying in Ikorodu, a city in Nigeria’s commercial capital, electricity is becoming a luxury.
“We already ration power use because we can’t afford the current bills,” she said. “If they increase it again, how are we supposed to survive?”
Her concern is echoed by millions of low-income earners who rely on electricity for their small businesses or daily living.
Higher tariffs mean more families will have to choose between paying for power and other essential needs like food, education, and healthcare.
“This hike will affect everything,” says Tunde Oladipo, a barber in Ibadan. “I will have to charge more for haircuts, but my customers are also struggling. It’s a vicious cycle.”
The potential for widespread energy poverty looms large. According to the World Bank, over 85 million Nigerians, more than 4 out of 10 Nigerians, lack access to electricity.
For those who are connected, affordability remains a significant challenge.
The proposed tariff hike could force many households to reduce their electricity consumption or disconnect entirely, reversing years of progress in expanding access to power.
The case for cost-reflective tariffs
Despite the pain it may cause, the push for cost-reflective tariffs is rooted in the need to address the deep-seated challenges plaguing Nigeria’s electricity sector.
For decades, electricity tariffs have been heavily subsidised, with the government covering the gap between the cost of production and the amount paid by consumers.
This has left the sector chronically underfunded, with power generation companies (GenCos) and distribution companies (DisCos) struggling to recover costs and invest in infrastructure.
The result is a power sector that operates far below its potential. Nigeria, with a population of over 200 million, generates only about 4,000 to 5,000 megawatts (MW) of electricity on average—a fraction of what is needed to power homes, businesses, and industries.
Last month, Biodun Ogunleye, Lagos state commissioner for energy said about six million households in Nigeria’s commercial capital burn about nine billion litres of fuel to self-generate more than 10 gigawatts of power annually.
This is aside from the 6.6bn litres of fuel consumed by the 113,642 generators run by offices and small businesses and another 61 million litres of fuel consumed by over 13,704 generators in markets across Lagos, according to the data from the government official.
Proponents of the tariff hike argue that cost-reflective tariffs are essential to attracting investment, improving infrastructure, and ensuring a stable power supply.
“The current tariff regime is unsustainable,” says Chinedu Okonkwo, an energy analyst based in Abuja. “If we want to fix the power sector, we need to allow market forces to play a role. Subsidies have only created inefficiencies and discouraged private investment.”
The Nigerian Electricity Regulatory Commission (NERC) has echoed this sentiment, stating that the proposed hike is necessary to ensure the financial viability of the sector.
According to NERC, the increase will enable DisCos to recover costs, pay GenCos for the electricity they supply, and invest in upgrading aging infrastructure.
Read also: Nigerians to be hit by another electricity tariff hike after jumbo band A increase
Manufacturers raise alarm
While households grapple with the prospect of higher electricity bills, manufacturers are warning of dire consequences for the economy.
The Manufacturers Association of Nigeria (MAN) has been vocal in its opposition to the proposed tariff hike, arguing that it will further erode the competitiveness of Nigerian industries.
“The proposed increase in electricity tariff is inimical to the competitiveness of Nigerian products and businesses as it will further exacerbate the impact of high cost of production and worsen the current inflationary pressure,” said Segun Ajayi- Kadir, director general MAN in a statement.
The director general added that it will aggravate the pressure on the disposable income of the average Nigerian, increase the unsold inventory of manufacturers, erode their profit margin, increase unemployment rate and lead to closure of more private businesses.
Kadir noted that no nation can attain significant industrial development without energy security, which is timely access to sustainable and cost-effective energy.
“Sustainable and low-cost energy supply provide incentives for scale production and competitiveness of the industrial sector,” he said.
MAN’s concerns are not unfounded. Nigeria’s manufacturing sector has long struggled with high operating costs, driven in part by unreliable power supply.
Many manufacturers rely on diesel generators to keep their operations running, spending billions of naira annually on fuel.
The proposed tariff hike, coupled with the existing challenges, could force some factories to scale back production or shut down entirely, leading to job losses and reduced economic output.
“We are already operating in a very difficult environment,” says Adeola Ogunmola, who runs a small textile factory in Abeokuta. “If the cost of electricity goes up, I may have to lay off some workers or close shop altogether. It’s a tough decision, but I don’t have a choice.”
Striking a balance
The debate over electricity tariffs highlights the delicate balance between addressing the financial needs of the power sector and protecting consumers from undue hardship.
While cost-reflective tariffs are essential for the long-term viability of the sector, experts argue that the transition must be managed carefully to minimise the impact on vulnerable populations.
“The government needs to implement incentives for businesses to adopt energy-efficient technologies to cushion the effect of the tariff hike,” Abimbola Adesoji, an economist at the University of Lagos.
Others have called for greater transparency and accountability in the power sector. “Consumers need to see tangible improvements in service delivery before they can accept higher tariffs,” a senior executive operating in Nigeria’s power sector said. “If people are paying more, they should get better value for their money—more reliable power, fewer outages, and improved customer service.”
For Mercy Okon and millions of Nigerians like her, the hope is that the pain of higher tariffs will eventually lead to a brighter future—one where reliable electricity is not a luxury but a given.
“I just want to be able to run my business without worrying about the light,” she said. “If this increase will help make that happen, then maybe it’s worth it. But for now, it’s just another burden to bear.”
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