States to implement new tariff structures, phase out electricity subsidies

State governments across Nigeria are set to implement new electricity tariff structures as part of a broader effort to phase out subsidies and create a more efficient and sustainable power market. This initiative follows the recent approval of the Electricity Act 2023.

In a document titled “Development of the National Integrated Electricity Policy and Strategic Implementation Plan Policy Recommendations by State Governments to the Federal Ministry of Power,” the Nigeria Governors’ Forum outlined their plans for introducing varied electricity tariffs within their regions.

The states argue that the current system of electricity subsidies has been inefficient and has failed to improve the quality and reliability of power supply.

The Electricity Act 2023 replaces the Electric Power Sector Reform Act and introduces a dual market structure comprising a central wholesale federal market and decentralized retail sub-national markets, interconnected through various policies and regulations. This new framework aims to foster a more competitive and responsive electricity market.

According to the Nigeria Governors’ Forum, electricity should be treated as a commodity that consumers must pay for, without relying on subsidies that have historically covered inefficient costs and poor service by distribution companies (Discos), the Transmission Company of Nigeria (TCN), generation companies (Gencos), and gas producers.

The states emphasize that these subsidies have primarily benefited those connected to the national grid, leaving millions in underserved and unserved communities to pay significantly higher costs.

The forum recommends that electricity subsidies be reduced and eliminated, except for predefined customer categories or in line with national economic growth initiatives. They propose conducting a cost-of-service analysis to determine the appropriate tariff levels and necessary subsidies for each state.

To ensure a fair and effective transition, the states call for collaboration between the Federal Government and state authorities. They stress that any federal subsidies should not discriminate against states and regions with more efficient electricity markets, and should be applied in a way that supports the viability and sustainability of these markets.

The Governors’ Forum also points out that ongoing subsidies could undermine the development of state electricity markets. They advocate for a joint framework with the Federal Government to administer future electricity subsidies, ensuring they are targeted and effective.