Power minister laments as electricity subsidy rises to N3tn

15th February 2024

Adebayo-Adelabu

The indebtedness of Nigeria’s power sector to electricity generating companies and gas producers has risen to about N3.3tn, the Federal Government declared on Wednesday.

It also revealed that subsidy on electricity for 2024 would gulp about N3tn, whereas only N450bn was budgeted for this purpose in this year’s budget, adding that it was now very difficult to sustain power subsidy.

Minister of Power, Adebayo Adelabu, said Nigeria must begin to move towards a cost-effective tariff model, as he revealed that the country was currently indebted to the tune of N1.3tn to electricity generating companies, while the debt to gas companies was $1.3bn.

The minister, who spoke at a press conference in Abuja, which also had the heads of all the agencies under the Federal Ministry of Power in attendance, however, insisted that he would not resign his position as power minister following calls for his resignation by some persons.

Although he stated that the ministries of power, finance and petroleum were making efforts to tackle the crisis in the sector, Adelabu revealed that the electricity subsidy for January 2024 had not been paid yet by the Federal Government.

He also revealed that the crash in power generation and attendant poor supply in January was because gas suppliers stopped supplying gas for the generation of electricity due to the indebtedness of the sector to gas producers.

Adelabu said, “Today, we are owing a total of N1.3tn to the power generating companies, out of which 60 per cent is being owed to gas suppliers. Today we have a legacy debt, prior to 2014, to the gas companies of $1.3bn; at today’s rate, that is close to N2tn.

“Now, if you add N2tn legacy debt owed gas companies and the N1.3tn being owed the Gencos, we have an inherited debt of over N3tn in this sector. How will the sector move forward? Nigerians deserve the right to know this.

“However, we are working underground to make sure that we resolve these issues and pay these debts either through cash injections or through guaranteed debt instruments to ensure the continuity in the generation of power.”

On the power crisis at the beginning of the year, he said, “So what happened in January was that the gas companies that have been managing to supply gas to generating companies decided to ask for their money by saying ‘we are not supplying gas until you pay your debts.’ If I was in their shoes, would I not do the same thing?”

Buttressing the issue of subsidy, the minister stated that countries such as Ghana, Togo, Benin Republic pay much more than Nigeria for electricity, stressing that the government might not be able to continue funding subsidies.

“What we have made provision for in the 2024 budget for subsidy is N450bn and we will require N2.9tn for subsidy. So can we afford it? We must be realistic. Can we afford it?

“N450bn is less than 20 per cent of the almost N3tn that is required for subsidy if we must continue at the current price (for electricity). So these are things that we need to decide on as a nation.”

Subsidy retained

On January 18, 2024, The PUNCH reported that the Nigerian Electricity Regulatory Commission released the 2024 electricity tariffs which showed that the Federal Government would shoulder about N1.6tn subsidy this year to avert electricity tariff hike.

This, however, has increased to about N3tn, going by Adelabu’s revelations on Wednesday.

The report in January stated that in the tariff review applications of the 11 power distribution companies in Nigeria, the NERC revealed what it approved as their different cost-reflective tariffs and what was allowed as tariffs by the commission following the Federal Government’s subsidy.

The NERC disclosed this in the regulatory instruments on the Multi Year Tariff Order 2024 for the different power distribution companies.

It said the order shall take effect from January 1, 2024, and shall cease to be effective on the issuance of a new tariff review order by NERC for each particular Disco.

The reports indicated that the tariffs should naturally rise considering various economic fundamentals and industry parameters such as the rise in foreign exchange, cost of gas, inflation, among others.

But an analysis of the MYTO 2024 documents for various Discos indicated that the NERC retained the electricity tariffs for 2023, based on the subsidy being paid by the government this year.

Taking Ikeja, Benin and Abuja Discos for instance, while the cost-reflective tariffs approved by NERC for the Discos for 2024 were N112.10/Kilowatt-hour, N126/kWh and N120.88/kWh respectively, what the regulator approved for the power firms were N56.6/kWh, N60.1/kWh and N63.24/kWh respectively.

It was observed that the NERC retained the tariffs charged by the Discos in 2023, as the Federal Government would pay their respective outstanding balance through subsidy this year.

Complex crisis

At the briefing on Wednesday, Adelabu noted that the crisis in the power sector had been so complex, stressing that the national grid had collapsed for about six times between December 2023 and now.

According to him, this was caused by shortage of gas, ageing machines in the grid value chain, low capacity to evacuate generated power, and destruction of power stations in some parts of the North-East geopolitical zone of the country.

“There have been multiple simple technical operational problems across all segments in the value chain, but made complicated by lack of sustainable liquidity and infrastructure funding, as well as structural misalignment.

“The simple technical operational issues are inadequate shortage of gas supplies and aging dilapidated generation machineries causing below optimal capacity utilisation and short supply by the Gencos.

 “Inadequate power evacuation capacity at Genco locations, coupled with unstable and fragile transmission lines, devoid of automated frequency controls, lacking in back-up capacity with frequent human disturbances through vandalism and theft,” Adelabu stated.

On the major complications, he said they include persistent liquidity issues coming from inappropriate tariff regime, poor collections and inadequate funding of government subsidies leading to huge debts owed to the transmission, generation and gas supply companies.

“This has restricted investments required for sustaining supply flow, capacity expansion and infrastructural improvements.

“It has also not only discouraged lending to the sector by financial institutions as the sectoral activities are not bankable, but has also made the sector unattractive to new investors,” the minister stated.

On some of the roadmap to stabilise the sector in preparation for turn around and transformation, the minister said, “Settlement of existing sectoral outstanding debt obligations to the gas supply and power generation companies using partly cash payment and guaranteed debt instruments.

“A national discourse on the nation’s perspective to electricity supply, whether it is a commercial product or social service. There must be an agreement across divides on how we define electricity.

“Depending on the outcome of the above, it is either the implementation of a cost reflective tariff or a cashed backed Federal Government guaranteed subsidy funding regime to inject liquidity into the sector.”

Adelabu called for increased investments across the value chain for infrastructural improvements, capacity expansion and transmission automation.

He said there was a need for the diversification of power generation to absorb renewables and facilitate the nation’s journey to energy transition target.

“We have to encourage distributed power strategy in conjunction with sub-national government focussing on embedded power model to reduce pressure on the national grid, and to ensure alternative electricity supply to Discos” the power minister stated.

SOURCE:PUNCH

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