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Nigeria plans to halt power subsidies due to US$857.5m energy debt

Nigeria’s Federal Government plans to end subsidies on electricity due to the surging government's debt to generating companies, estimated at more than NGN1.3tn (US$870m), while the electricity subsidy budget for 2024 was set at NGN450bn (US$30m), much below the NGN2bn (US$1.3bn) required for that. The government also owes US$1.3bn to gas companies. 

The announcement constitutes a significant policy shift aimed at addressing economic challenges like the subsidy debt and the increasing pressure to reform the energy sector and improve fiscal sustainability in Nigeria to encourage private investment in the sector. 

According to the NERC (Nigerian Electricity Regulatory Commission), generation costs represented 49% of end-use tariffs in 2022, followed by distribution costs (24%), efficiency losses (18%), and transmission costs (18%). The government covers the gap between the cost-reflective tariffs and the actual end-user tariffs payable by customers, representing about 11% of the final cost. A 7.5% rate of VAT applies to the end user tariff minus the subsidy. Electricity prices have been decreasing since 2018 (-40% in dollars) reaching US$8.6/kWh for industry and US$8.4/kWh for households at the end of 2022, in a context of a depreciating naira (NGN).  

At the end of May 2023, fuel subsidies were removed, leading the Nigerian National Petroleum Company (NNPC) to triple the price of petrol (premium motor spirit (PMC)) from NGN189/l (US$0.4/l) to NGN557/l (US$1.2/l) in June 2023. NNPC  was owed more than US$6.1bn in fuel subsidy payments by the government and could no longer afford to pay for the subsidies.

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