Nigeria’s Power Subsidy Crisis Deepens as FG Spends N1.98tn in 12 Months Despite Reform Promises

Abuja — Nigeria’s electricity subsidy burden has continued to swell, raising fresh concerns about fiscal sustainability and the viability of ongoing power sector reforms, as the Federal Government incurred a total of N1.98 trillion in electricity subsidy obligations within 12 months, from October 2024 to September 2025.

The figure, compiled from quarterly reports released by the Nigerian Electricity Regulatory Commission (NERC), highlights the growing disconnect between policy promises and market realities, even after controversial tariff adjustments introduced in April 2024.

Subsidy costs remain stubbornly high

According to NERC data, electricity subsidies stood at:

• N471.69bn in Q4 2024 (October–December)

• N536.40bn in Q1 2025

• N514.35bn in Q2 2025

• N458.75bn in Q3 2025

Although the Q3 figure represented a modest decline, the cumulative cost pushed total subsidy spending to N1.98tn in just one year, underscoring the scale of the fiscal strain confronting the government.

In its latest report released on Tuesday, NERC attributed the subsidy burden to electricity tariffs remaining below cost-reflective levels, forcing the Federal Government to bridge the gap between actual generation costs and what consumers are allowed to pay.

“In the absence of cost-reflective tariffs, the government undertook to cover the resultant gap between the cost-reflective and allowed tariff in the form of tariff subsidies,” the commission stated.

Band A tariff fails to deliver expected relief

 

The persistence of high subsidy costs has drawn renewed scrutiny to the Band A tariff regime, introduced in April 2024 and billed by government officials as a decisive step toward reducing subsidy dependence.

Despite the removal of subsidies for Band A customers—who receive a minimum of 20 hours of electricity daily—overall subsidy obligations remain elevated.

Power Minister Adebayo Adelabu has repeatedly warned that the current subsidy structure is unsustainable, advocating a more targeted approach that protects only the poorest and most vulnerable consumers. However, the data suggests that the fiscal relief expected from the reform has yet to materialise.

How the subsidy is applied

NERC explained that electricity subsidies are applied at source, through Distribution Companies’ (DisCos) payment obligations to the Nigerian Bulk Electricity Trading Plc (NBET).

Under the DisCo Remittance Obligation (DRO) framework—introduced in January 2024 to replace the Minimum Remittance Obligation—DisCos pay only the portion of generation costs covered by allowed tariffs, while the Federal Government directly settles the subsidy component.

“The transition to the DRO regime was necessitated by the risk of unpaid tariff subsidy debts encumbering the balance sheets of the DisCos, thereby preventing them from raising finance for critical investments,” NERC said.

In Q3 2025, total generation costs would have reached N782.45bn without government intervention. However, due to subsidies, the invoice payable by DisCos to NBET fell to N323.70bn, with the government absorbing the balance.

Subsidy still accounts for most generation costs

Despite the slight reduction in Q3, subsidy payments still accounted for 58.63 per cent of total generation invoices, only marginally lower than the 59.60 per cent recorded in Q2.

NERC said the decline was driven by lower energy offtake and a marginal reduction in generation costs, rather than any structural improvement in tariff design.

“There was a 6.08 per cent decrease in energy offtake by the DisCos during the quarter, as well as a 0.98 per cent decline in actual generation cost per kilowatt-hour,” the commission noted.

DisCos’ mixed remittance performance

The regulator reported that DisCos recorded a 95.23 per cent remittance rate to NBET in Q3, remitting N308.25bn out of N323.70bn invoiced. While most DisCos met their obligations in full, Jos, Kaduna, Benin, and Kano DisCosfell short.

Kaduna DisCo posted the weakest performance, remitting just 40.16 per cent of its invoice, while Jos DisCo improved slightly but still recorded a subpar 65.13 per cent remittance rate.

On payments to the Market Operator (MO), DisCos remitted 95.13 per cent of invoices in Q3, a slight improvement from the previous quarter.

Persistent losses undermine the sector

Beyond subsidies, the report revealed deep structural inefficiencies within the distribution segment. Between Q2 and Q3 2025, DisCos recorded combined billing losses of N315.17bn, driven largely by energy theft, weak metering, and poor commercial controls.

In Q3 alone:

• Energy offtake was valued at N854.53bn

• Energy billed stood at N706.61bn

• Billing efficiency reached 82.69 per cent

• Collection efficiency improved to 80.70 per cent

Yet, aggregate technical, commercial, and collection (ATC&C) losses remained high at 33.27 per cent, far above the 2025 MYTO target of 20.54 per cent. Only Eko and Ikeja DisCos met their loss targets during the quarter.

Experts: ‘Subsidy is no longer sustainable’

Energy sector experts insist that the current subsidy model is untenable.

Adetayo Adegbemle, convener of PowerUp Nigeria, said the government must urgently chart a path away from blanket subsidies.

“I’ve been pushing that our current subsidy is not sustainable. It affects the entire value chain,” he said. “The government has failed to meet its subsidy obligations, and that is why GenCos are owed trillions.”

Adegbemle argued that political considerations—especially the fallout from fuel subsidy removal and exchange rate volatility—have delayed decisive action.

“The Electricity Act provides for a Power Consumer Assistance Fund, but the government has not implemented it. If subsidies had been properly paid, we wouldn’t be owing GenCos today,” he added.

Consumers push back

Consumer groups, however, say recent tariff reforms have failed both the government and electricity users.

The Nigeria Electricity Consumers Advocacy Network (NECAN) described the service-based tariff regime as a policy failure.

“I have always called it a scam,” said Uket Obonga, NECAN’s National Secretary. “The promise was that Band A tariffs would reduce subsidies. Has that happened? No.”

Obonga warned that electricity revenues collected by DisCos are now almost at par with government subsidy payments, raising serious questions about efficiency and accountability.

“DisCos are benefiting from selling darkness and still collecting money,” he said. “They are charging for power that is not supplied.”

He also expressed concern about the Federal Government’s N4tn electricity bond, issued to clear legacy debts, questioning its impact and investor uptake.

“What has the bond achieved? There is still no clarity,” Obonga said, warning that weak confidence could undermine future financing efforts.

A system at a crossroads

With subsidy costs mounting, liquidity challenges persisting, and consumers increasingly dissatisfied, Nigeria’s power sector stands at a critical juncture.

Analysts warn that without cost-reflective tariffs, targeted social protection, and aggressive loss reduction, electricity subsidies could continue to drain public finances—crowding out spending on health, education, and infrastructure—while failing to deliver reliable power to Nigerians.

As 2026 approaches, the question remains whether the government will confront the political and economic trade-offs required to finally break the cycle.