Nigeria to Phase Out Electricity Subsidy by 2027.
The Nigerian government has unveiled its strategy to gradually phase out electricity subsidies by 2027, citing the immense financial strain of sustaining the current subsidy system. Power Minister Adebayo Adelabu revealed that subsidizing the sector has cost the government approximately N2.9 trillion in the first quarter of 2024 alone, presenting a significant challenge to national finances.
Adelabu emphasized that the existing subsidy regime is unsustainable, consuming over 10% of the national budget and impeding investment in the power sector. He argued that redirecting these funds to other critical sectors is essential for Nigeria’s overall development.
Under the new plan, the government will transition to a “cost-reflective tariff” system, gradually adjusting electricity prices to better align with production costs. This transition began with a recent tariff hike for Band A customers, increasing rates from N66 to N225 per kilowatt-hour. However, Adelabu assured that this adjustment only impacts approximately 15% of electricity consumers, mainly those receiving at least 20 hours of daily electricity.
The government anticipates that this reform will attract both local and foreign investment in the power sector, addressing infrastructure decay and liquidity challenges currently plaguing the industry.
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While acknowledging concerns about potential hardships resulting from higher electricity bills, Adelabu stressed the long-term benefits of the transition. He highlighted that even with the new rates, electricity remains more than 50% cheaper than alternative power sources.
This phased approach aims to minimize the immediate impact on Nigerians, providing time for consumers and businesses to adjust gradually. The government’s goal is to establish a sustainable and efficient power sector that can support Nigeria’s economic growth and development in the long run.
