Reduction in electricity tariff will boost government coffers by N1tr yearly

The federal government of Nigeria will save about N1.1 trillion with its plans to axe electricity subsidy.

Presidential spokesperson Bayo Onanuga said on Tuesday that Nigeria plans to axe an electricity subsidy for 15 per cent of consumers to reduce its N3.3 trillion ($2.6 billion) cost, part of a series of reforms to ease pressure on public finances,.

Onanuga said the government was under pressure to allow a price increase in the electricity sector as it only budgeted N450 billion for the subsidy this year.

He did not say when the tariff increase would come into effect, but said that when it did the government expected to save close to N1.1 trillion per year.

Nigeria last reviewed electricity tariffs in 2020, Onanuga said, adding the proposed increase would help businesses recover costs and boost investment.

"With the huge subsidy burden and high cost of gas ... the current electricity tariff is not realistic," he said.

President Bola Tinubu embarked on Nigeria's boldest reforms in decades last year after he scrapped a popular but costly fuel subsidy and allowed the currency to devalue sharply.

The reforms Tinubu hopes will revive growth in Africa's biggest economy have stoked inflation to more than 30% and worsened a cost of living crisis, angering workers.

Onanuga said only 15 per cent of consumers, accounting for 40 per cent of electricity consumption, would be affected.

Nigeria's power sector faces a myriad of problems including a failing grid, gas shortages, high debt and vandalism. The country has 12,500 megawatts of installed capacity but produces only about a quarter of that, leaving many reliant on expensive diesel-powered generators.

Also, state-controlled power tariffs are too low to allow distribution companies to recoup costs and pay generating companies - leaving the sector with ballooning debts.

Onanuga said the government would consider helping generating companies to offset around N1.5 trillion of debt owed to the country's bulk electricity purchaser.