Nigeria has successfully reduced electricity subsidies by 35%, marking a significant shift in the country’s approach to managing its energy sector and public finances. Power Minister Adebayo Adelabu announced the achievement on Thursday, attributing it to a tariff increase implemented last year for certain users. The reduction in subsidies comes at a time when Nigeria’s power sector is grappling with a myriad of challenges, including a failing grid, gas shortages, high debt, and widespread vandalism.
Prior to the tariff adjustments, Nigeria was spending approximately Ksh. 16.2 billion every month on electricity subsidies, a cost driven by the unsustainable low tariffs for most users. In a bid to tackle this, the government eliminated subsidies for the top 15% of users households and businesses consuming large amounts of electricity. As a result, the country has seen a 70% increase in revenue generation, amounting to an additional 700 billion naira. This increase has significantly eased the financial strain on the government, reducing the tariff shortfall from 3 trillion naira (Ksh. 242 billion) to 1.9 trillion naira (Ksh. 153 billion).
However, Nigeria’s power sector still faces deep-rooted issues. Despite an installed capacity of 13,000 megawatts, the country typically produces only about a third of that capacity, relying heavily on costly generators. The persistent problem of low tariffs, historically set too low to cover the costs of distribution and generation, has contributed to the ballooning debts within the sector, with power-generating companies currently owed Ksh. 324 billion ($2.5 billion).
To address these financial challenges, Adelabu revealed that the government plans to pay off half of the sector’s debt this year through budgetary allocations and promissory notes, which power companies can use to raise funds. While the tariff adjustments and subsidy cuts are a step toward financial sustainability, Nigeria’s power sector remains in urgent need of structural reforms to ensure long-term viability.
