Electricity Subsidy Bill Could Near N2tn as FG Freezes Tariffs

By Chibuzor Alli

Nigeria’s electricity subsidy bill could approach N2tn this year as the Federal Government maintains that there are no immediate plans to increase electricity tariffs.

The government spent N1.93tn on electricity subsidies in 2025, according to the Nigerian Electricity Regulatory Commission’s 2025 Annual Report. The figure represented 57.44% of the total invoice issued by the Nigerian Bulk Electricity Trading company and averaged N160.69bn each month.

Power Minister Joseph Tegbe said on Monday that the government would continue to protect vulnerable consumers while working towards a commercially viable electricity market.

“There are no immediate plans to increase electricity tariffs. Our goal is to build a commercially viable power sector while protecting vulnerable consumers,” Tegbe said.

The minister made the comments at a media briefing in Abuja to mark his first 100 days in office.

Why the electricity subsidy is rising

NERC said the government incurs the subsidy because approved electricity tariffs remain below the cost of supplying power.

Under the current arrangement, the Federal Government pays the difference between cost-reflective tariffs and the tariffs allowed for electricity consumers.

“In the absence of cost-reflective tariffs, the government undertakes to cover the resultant gap (between the cost-reflective and allowed tariff) in the form of tariff subsidies.

“It is important to note that due to the absence of cost-reflective tariffs across all DisCos, the government incurred a subsidy obligation of N1.93tn (57.44 per cent of total NBET invoice) during the year,” the commission said.

With the government ruling out an immediate tariff increase, the subsidy burden could remain close to the N2tn level in 2026.

The subsidy burden had already approached N2tn in 2024 and 2025 despite the introduction of the Band A to E tariff classification in 2024.

Customers in Band A pay tariffs closer to the cost of electricity, while consumers in other bands continue to benefit from government support.

Power companies warn of growing debts

The subsidy debate comes as electricity generation companies raise concerns over the sector’s mounting financial obligations.

The Association of Power Generation Companies has questioned whether the Federal Government’s N4tn Presidential Power Sector Debt Reduction Programme will be enough to resolve the industry’s liquidity problems.

The power producers said they supported efforts to raise bonds to settle outstanding debts but warned that new liabilities could exceed N7tn before the debt-reduction programme is fully implemented.

They argued that debts continue to accumulate because payments across the electricity market remain incomplete.

“Every month, the DisCos are not paying 100 per cent. NBET is not paying 100 per cent. The N4tn legacy debt is until December 2024. So, how about the accumulation for 2025? And what is already accumulated for 2026? So by the time you finish issuing this N4tn bond over seven years, by 2033, two times what you’re going to pay would have accumulated. So what is your plan?” the APGC Chief Executive, Joy Ogaji, asked the question.

APGC calls for budgeted subsidy

Ms Ogaji also called for a different approach to electricity subsidies, arguing that the government should clearly establish what level of support it can afford and provide for it in the national budget.

“One of the sustainable ways is for the Federal Government to acknowledge the fact that they cannot subsidise the power market. Because you can see it’s only on paper that the government is subsidising power. It’s not in the budget.

“There is no monetary provision anywhere for subsidies, not even in the supplementary budget; it’s nowhere. It’s just being. You said you would pay. We have not seen it,” she stressed.

She said a clearly defined and budgeted subsidy would provide greater certainty than the current arrangement, which she linked to rising debts across the electricity value chain.

Minister outlines power-sector challenges

Mr Tegbe said the government was working to address long-standing problems in the sector, including debt, revenue leakages, inadequate metering and infrastructure constraints.

His first 100 days in office, covering 8 June to 16 September, had focused on assessing problems across the electricity value chain, stabilising existing infrastructure and improving market discipline, he said.

The minister said gas supplies to power plants had been affected by damaged pipelines and commercial conditions that discouraged investment.

He also pointed to ageing generation equipment, deferred maintenance and stalled projects as factors preventing available generation capacity from reaching consumers.

Payment challenges have added to the pressure on generation companies, with Tegbe saying they received only 27% of their bills.

“When President Bola Tinubu entrusted me with the responsibility of serving as Minister of Power, I made four promises to Nigerians. I promised a disciplined approach to solving the sector’s problems. I promised to pursue grid stability through structured, strategic reforms. I promised visible incremental improvements.

“Upon assuming office, the diagnosis we undertook at the onset revealed constraints at every segment of the electricity value chain. Gas supply to power stations was limited by damaged pipelines and commercial terms that discouraged investment.

“Our generation fleet was heavily dependent on thermal plants, with ageing equipment, deferred maintenance, stalled projects, and capacity unable to reach consumers. The sector diagnosis revealed payment of only 27 per cent of generation companies’ bills, undermining their ability to maintain plants and pay gas suppliers,” Tegbe stated.

He added that the transmission network faced similar problems, including vandalised towers and lines, overstretched equipment and frequent system trips.

How the subsidy system works

NERC said the subsidy framework requires the government to cover the difference between the cost-reflective tariff and the tariff approved for consumers.

Under the system, the subsidy is applied to the generation cost payable by distribution companies to NBET.

The regulator said the portion of generation costs that is not covered by DisCos is then invoiced to the Federal Ministry of Finance for settlement.

According to NERC, the framework was introduced partly to prevent unpaid subsidy obligations from building up on the balance sheets of DisCos and restricting their ability to secure financing for essential network investments.

The N1.93tn subsidy obligation recorded in 2025 illustrates the financial cost of keeping electricity tariffs below the cost of supplying power.

For 2026, the government’s decision not to immediately increase tariffs means it will continue to carry a substantial share of the cost of electricity while efforts continue to improve revenue collection, infrastructure, gas supplies and electricity service delivery.