An energy expert, Odion Omonfoman who is the Lead Consultant on Power to the Nigeria Governor's Forum (NGF) has stated that the planned removal of electricity subsidy from the federation account will resort to inequality among states as consumption differs.
It would be recalled that the federal government had planned to deduct N1.8trn annual from the federation account from 2026 to 2028.
This is part of efforts the government said will reduce the subsidy burden the federal government had been carrying that has led to backlog of unpaid subsidy to electricity subsidy that has accumulated to over N6trn.
But odion said applying a blanket deduction creates a severe moral hazard and inequality among States.
Keep up with the latest headlines on WhatsApp | LinkedIn
He noted that Lagos State accounts for over 40 percent of energy consumption, while states like Taraba have nine out of 16 LGAs entirely unconnected to the National Grid.
He added that in Bayelsa State, the national grid was virtually non-existent even in the capital until recently.
"In many States, entire LGAs have been disconnected for decades. Is it justifiable for the FAAC allocation of Taraba State (with minimal access) to be deducted to subsidise the power consumption of Lagos State," he said.
He noted that the accumulated subsidy debt is a direct result of the DisCos' inability to remit the full value of energy received.
"This is caused by high operational losses and commercial inefficiencies of DisCos; Tariff shortfalls arising from the regulator (NERC) setting tariffs lower than generation/supply costs; and market shortfalls where DisCos fail to meet invoices from the Market Operator (MO) and Nigerian Bulk Electricity Trading (NBET)," he stated.
He added that both tariff and market shortfalls represent deliberate policy decisions by the Federal Government to suppress electricity prices for political or socio-economic reasons. As such, all shortfall payments are the exclusive obligation of the federal government and cannot be transferred to States and LGAs.
He added that the decision is also lacking a constitutional footing as there is no subsidiary legal basis for such deductions.
"Specifically, the Electricity Act (EA) 2023 neither makes nor implies any provision for the FG to debit States and LGAs for subsidy payments to the power sector. The EA 2023 does not mandate any tier of government (Federal, State, or Local) to bear electricity subsidies in either the wholesale or sub-national electricity markets."
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
"The termed "electricity subsidies" are effectively shortfall payments owed by the Nigerian Bulk Electricity Trading Plc (NBET) to Generation Companies (GenCos) and gas suppliers. NBET is a limited liability company wholly owned by the Federal Government, not the Federation (which comprises the FG, 36 State Governments, and 774 LGAs)."
