Nigeria: Power Supply Subsidy May Gulp N3.4tn By 2023, World Bank Warns

22 April 2021

The World Bank yesterday expressed fresh concerns about the current subsidy regime in the Nigerian Electricity Supply Industry (NESI), projecting that the federal government could be paying as much as N3.4 trillion by 2023 if the current shortfall persists.

Speaking at a "World Bank Dialogue with Energy Reporters" in Abuja with the theme: "Fostering Knowledge-Sharing and Dialogue on Power Sector Issues in Nigeria," top officials of the bank, however, said the bank would continue to assist the country in dealing with the challenges.

Some of those who spoke at the online Power Sector Recovery Programme (PSRP) event were the Practice Manager, West and Central Africa Energy World Bank, Ashish Khana, World Bank Country Director, Shubham Chaudhuri and Senior Energy Specialist, World Bank, Mr Muhammad Wakil.

But compared with previous attempts at reforming the sector, the bank said there is now more commitment at the highest level to ensure that the right decisions are taken, with the new team led by the office of the president and the ministers of finance and power also deeply involved.

Leading the discussion, Wakil stated that there's now a commitment to balance fiscal space with tariff adjustments while ensuring protections for the poor.

In addition, he stated that actions are now based on real sectorial data collection, while the design reflects findings of extensive opinion research and willingness to listen, while payment or financing is now linked to performance.

However, he said many issues, including the service-based tariff option was still being resolved, plus over-dependence on gas and over-reliance of the grid on just seven power plants which contribute 59 per cent of the total power.

He added that though he acknowledged that the federal government wanted to keep tariffs low and help the economically disadvantaged, most of the benefits went to the relatively better off, while creating a massive fiscal burden.

"If this goes on, the government will have to spend over N3 trillion by 2023," he stated.

He added that the cumulative shortfall could be as much as N3.4 trillion, five times the 2020 budget allocation for education and seven times the allocation for health.

According to him, keeping tariffs low benefits the rich more than the poor as the former are more connected to the grid and consume more electricity.

Wakil stated that only 22 per cent of the poorest households have access to electricity, while every N10 on meeting the tariff shortfall, N8 goes to the richer households who don't need help paying their power bills.

While calling for a more just and fair tariff policy, he said tariff adjustment did not mean the poor would pay more, but those who could afford it would pay more.

He added that Distribution Companies (Discos) on average currently report 50 per cent Aggregate Technical, Commercial and Collection (ATC&C) losses, far from the 15 per cent international good practice and 26 per cent allowed in the Multi-Year Tariff Order (MYTO).

He stated that for every N10 worth of electricity received by Discos, N2.50 is lost to energy theft and poor distribution infrastructure.

The bank chief added that this reflects low investment in distribution network and metering, creating lingering liquidity challenges.

"Nigeria now has the largest number of 'unelectrified' people globally and the trend is worsening. Of the electrified, the supply is very unreliable with widespread blackouts," he stated.

For instance, the bank official said, Nigeria now has 25 per cent more 'unelectrified' people than the second most unelectrified country in the world, the Democratic Republic of Congo (DRC).

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