Daud Olatunji
The Association of Electricity Distributors of Nigeria (ANED) has emphasized that without electricity subsidies, the majority of Nigerians would be unable to afford the actual cost of power supplied to them.
ANED’s Regulatory Specialist, David Adeyeye, discussed the importance of continued government support for the power sector during a recent live television interview.
Adeyeye highlighted the challenging economic conditions, particularly the exchange rate, as a major factor.
He pointed out that with the current exchange rate of about N1,150 to a dollar, imposing the actual cost of electricity on Nigerians would be unsustainable.
He argued that the government should play a role in ensuring access to power for the nation’s economic well-being.
The need for subsidies in the power sector is not unique to Nigeria, as Adeyeye explained. Many countries around the world provide some form of subsidy for their power industries due to the high capital investment required.
Adeyeye stressed that Nigeria’s approach is not abnormal in this regard.
To sustain the power industry, Adeyeye suggested that the Federal Government should continue providing subsidies. He pointed out that subsidies have historically been a part of the power sector.
In 2013, the government, through the Central Bank of Nigeria, established a stabilization fund for Discos to bridge the gap between the cost-reflective tariff and the allowed tariff.
In addition to the stabilization fund, the Federal Government implemented a payment assurance guarantee of N701 billion to address market shortfalls.
These shortfalls occur because the allowed tariffs, as set by the Nigerian Electricity Regulatory Commission (NERC), do not fully cover the costs incurred by the power generation companies (Gencos), distribution companies (Discos), and the Transmission Company of Nigeria (TCN).
To address these challenges, the government initiated consistent and timely payments to the Nigerian Bulk Electricity Trading (NBET) to bridge the revenue shortfall gap.
This allowed the Gencos to continue generating power. It’s important to note that the government is not directly providing funds to the Discos but rather working to reduce the debt burden on Gencos.
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