The Federal Government of Nigeria has halted the monthly review of electricity tariffs as the power subsidy bill continues to soar, now reaching a staggering N768.68 billion over just four months. This suspension comes as the country grapples with a significant power sector crisis, and growing concerns are emerging over the financial health of electricity generation companies (GenCos).
Indications are that the situation will worsen next year, as the Federal Government has not allocated funds in the 2025 budget to cover the tariff shortfall, leaving GenCos in a precarious position. Last month, these generation companies received only 45 percent of their expected payments, exacerbating their financial difficulties.
Electricity generation, which Minister of Power, Adelabu Adebayo, had assured would reach 6,000 megawatts by the end of 2024, has remained far below expectations. As of yesterday, generation levels fluctuated between 2,000MW and 4,100MW, according to data from the Transmission Company of Nigeria (TCN). This stark contrast to earlier promises underscores the challenges facing the sector.
Previously, the Nigerian Electricity Regulatory Commission (NERC) had adjusted electricity tariffs monthly based on factors such as inflation, foreign exchange fluctuations, and gas prices. In July, for instance, NERC raised the tariff for Band A feeders from N206.8/kWh to N209.5/kWh, effective July 1. Despite these adjustments, the broader economic situation has continued to strain the sector, with foreign exchange rates rising sharply until the recent appreciation of the naira.
Between August and November, the monthly tariff shortfall in the electricity market increased from N170 billion to N192.17 billion, bringing the cumulative shortfall to N768.68 billion over the last four months. These financial pressures are compounded by the ongoing underperformance of power plants, many of which are in a state of disrepair. Only about seven out of 30 plants are operating at optimal levels, and over 85 percent of the plants connected to the grid are producing less than 50 percent of their installed capacity.
By the end of 2024, the power sector’s yearly subsidy is expected to reach N2.3 trillion, with no clear budgetary provision from the government to cover this debt. Payment performance for the GenCos has been abysmal throughout the year. For instance, in January, the invoice value from GenCos was about N256.1 billion, but they only received approximately 8 percent of that amount. Although payments improved slightly in the following months, the highest payment made in July was just 35 percent of an invoice worth N261.6 billion. In August, the payment performance was at 33 percent for an invoice of N247.8 billion.
Despite a marginal improvement in payment performance to 45 percent last month, there are growing fears that a liquidity crisis will persist in the power sector. Mechanical issues, particularly related to the aging infrastructure of power plants—many of which are over 20 years old—are a major driver of plant unavailability. As of October, the plant availability factor across all grid-connected plants was just 39 percent.
The liquidity challenges facing the sector are compounded by underpayments to GenCos, which has resulted in further constraints on plant operations. With the government’s inability to address these financial shortfalls, the outlook for Nigeria’s power sector remains uncertain and potentially unstable.
Gathered by :Onoro Promise Edesiri