GenCos raise concerns over N4 trillion subsidy, condemn EERC
Nigeria’s power sector is once again at a crossroads, as new tariff orders and the Federal Government’s failure to pay electricity subsidies have prompted indications that the Nigerian Electricity Regulatory Commission (NERC) may be charging Band A customers about N50/kWh above cost-reflective levels to keep the electricity market theoretically liquid.
The development, which has raised questions about long-term sustainability, investor confidence, and the future of state-level electricity regulation in Nigeria, comes amid a push for the Federal Government to increase electricity tariffs for band B-E customers.
The Enugu State Electricity Regulatory Commission (EERC) had issued a tariff order for MainPower, pegging Band A tariffs at N160/kWh in 2025, a figure significantly lower than the prevailing average national composite tariff of N208/kWh.
While stakeholders are worried about the assumptions behind the state-level pricing and its potential consequences, especially as regards the burden of existing subsidies and market liabilities, EERC, one of the first to set tariff at the state level under the Electricity Act, put electricity generation cost for the next five-year period at N45/kWh, a dramatic deviation from the current average of N112/kWh.
This automatically showed that the Commission is asking the Federal Government to shoulder the 60 per cent shortfall or average subsidy of N67/kWh.
A senior official of NERC, who spoke on condition of anonymity, told The Guardian that the Commission implemented a N50/kWh differential in Band A tariffs to offset shortfalls from other customer categories. That excess, according to the source, was used to “patch the market” and maintain theoretical liquidity.
“We all know that N209 per kWh wasn’t cost-effective for Band A; it was applied because revenue from other bands wasn’t forthcoming. NERC wasn’t allowed to increase tariffs for those classes. So, the excess revenue from Band A was being used to subsidise the rest of the market to maintain liquidity, at least in theory. But even then, the market wasn’t truly liquid,” the source said.
The development, effectively “robbing Peter to pay Paul”, shows that NERC has maintained cross-subsidisation to successfully pass the burden of market inefficiencies to a few consumers, thereby pushing end-users, including President Bola Tinubu, off the grid over high electricity cost.
Currently, under NERC’s Multiple-Year Tariff Order (MYTO), generation cost is pegged at N70/kWh, gas at N50/kWh, transmission at N11/kWh, and distribution at N77/kWh, leading to a composite tariff of N208/kWh. These figures include adjustments for the Aggregate Technical, Commercial and Collection (ATC&C) losses, which stood at 39.1 per cent as of Q3 2024, meaning nearly N40 of every N100 worth of power supplied is lost and passed on to paying customers. It also included the cost of Meter Acquisition Fund and the cost of loans taken by the market.
The concerns over the tariff orders by EERC were that the liabilities of the market, including loans, were not factored in while the company focuses mainly on its DisCo Remittance Obligation, which is about 40 per cent of its invoice, leaving the subsidy burden for the Federal Government.
Since coming into power, Tinubu has incurred about N3 trillion in electricity debt and has not made any payment, even though N900 billion was budgeted in 2025.
Electricity consumer advocate, Kunle Olubiyo, criticised the persistent failures in subsidy remittances, noting that end-users are burdened with costs resulting from inefficiencies in generation, transmission, and distribution. “We urgently need to interrogate the indicators that form the electricity tariff template,” he said, while expressing concern about the lack of clear frameworks to attract long-term investment.
While some stakeholders insisted that NERC may need to readjust current electricity tariff to about N160/KWh to address the exodus from the grid over cost, Executive Secretary of the Association of Power Generation Companies (APGC), Dr Joy Ogaji, warned that the EERC tariff order sets a dangerous precedent for decentralised regulation without addressing key financial liabilities.
“The assumption that the Federal Government will cover 60 per cent of GenCos’ costs is not backed by cash or policy,” she said, noting that the government’s N900 billion subsidy budget for 2025 is yet to be cash-backed, despite GenCos averaging N250 billion in monthly invoices.
As of July 2025, GenCos are owed nearly N4 trillion, including N2 trillion in 2024 debts, N1.9 trillion in legacy debts (2015–2024), and N1.2 trillion in unpaid invoices for the first half of 2025.
Ogaji said no concrete plan exists for clearing these obligations, raising alarm about a systemic financial collapse. GenCos say they have fulfilled their end of the bargain since privatisation in 2013, investing in capacity, meeting performance obligations, and expanding generation, yet face non-payment, lack of guaranteed gas supply, transmission bottlenecks, and forex volatility.
“Patriotism alone cannot keep machines running or the lights on,” said Dr Ogaji. Hydropower, which could reduce reliance on costly gas, remains underutilised. Nigeria’s hydro capacity, including the 700MW Zungeru plant, could offer over 3,000MW of affordable power, but transmission limitations and gas-plant preference mean much of this capacity is not dispatched.
Stakeholders noted that EERC’s move, while well-intentioned in shielding consumers, may inadvertently exacerbate systemic liquidity issues as they warned that any state tariff structure must not assume national subsidies without clear financing, nor should it sidestep legacy debt obligations while assuming control of privatised assets.
Pioneer Managing Director of the Nigerian Bulk Electricity Trading Plc (NBET), Rumundaka Wonodi, described tariff decision by EERC as a sign of deepening capacity in Nigeria’s electricity market, though he cautioned that risks remain.
Wonodi noted that, while he could not comment on the specifics of the new tariff structure or the state regulator’s rationale, the move reflects growing capacity and confidence at the subnational level.
“We are now seeing a state regulator take on the critical responsibility of tariff setting, arguably one of the most significant components in regulating a distribution company,” he said.
Wonodi warned that the success of the new tariff regime would depend on the distribution company’s ability to meet its financial obligations, particularly in paying for electricity purchased from the national grid.
“Any shortfall cannot reasonably be expected to be covered by NBET. Enugu State must fully shoulder this responsibility,” he said. With no federal subsidy expected, he cautioned that any cost recovery gap could further strain the market.
“Increasing tariffs does not automatically guarantee higher revenue,” he emphasised, stressing the importance of improved service delivery to drive consumer willingness to pay.
Power sector stakeholder, Adetayo Adegbemle, warned that the move could trigger market instability if not properly managed. Reacting to the new tariff order, Adegbemle said he doubts the Enugu regulator has the right data and may have made errors in the computation.
“I hope they know what they are doing in Enugu. It’s still early, but I suspect something may have been missed,” he said.
Adegbemle also criticised the assumption that the Federal Government would continue to subsidise electricity in the state, describing it as unrealistic.
Adegbemle noted that the EERC tariff order transfers the Transmission Infrastructure Fund (TIF) cost to Enugu Disco and called for a response from national stakeholders such as NERC, NBET, and NISO.
He warned that GenCos may panic if Enugu fails to demonstrate its ability to pay for power consumed in the state. Drawing a comparison to South Africa’s model, he said: “The national grid should sell to Enugu at a cost-reflective rate. What Enugu does with it afterwards is their business.”
Electricity market analyst Lanre Elatuyi questioned EERC’s cost-reflectiveness and warned that the move may not be sustainable.
“I am not clear on the grounds upon which the Commission reduced Band A tariffs and labelled it cost-reflective. The Order only recognises N45 as generation cost, whereas the current wholesale weighted average stands at N112.6. That suggests the Commission expects the Federal Government to absorb the shortfall, contradicting the state’s stance on subsidy removal,” Elatuyi said.
He further noted that several critical cost components, such as Central Bank of Nigeria (CBN) loans, meter acquisition funds, and Market Operator (MO) bills, were excluded from the tariff computation.
Elatuyi added that the country is grappling with over N4 trillion subsidy backlog sitting as losses in GenCos’ books, with no funding available to cover new subsidy obligations.
While the EERC cited reduced operating expenses (OPEX) as justification for the new tariff, Elatuyi said this alone cannot support a sustainable electricity pricing framework. “The coming days will reveal whether this approach holds up under scrutiny,” he said.
Former President of the Chartered Institute of Bankers of Nigeria (CIBN), Professor Segun Ajibola, has described the recent tariff adjustment EERC as a rational move that could help retain more consumers on the national grid.
Reacting to the debate over Enugu’s decision to lower Band A tariffs, Prof. Ajibola said the forces of demand and supply must be considered, warning that a monopolist cannot fix both price and quantity simultaneously.
“There have been widespread complaints about the current Band A tariffs, particularly where the promised supply levels are not met. Rather than pushing more consumers off the grid and into alternative power sources, the Enugu ERC has taken a more rational route,” he said.
Ajibola also described the move as a potential wake-up call for other state electricity regulators across the country, adding that persistent consumer exit from the grid would only worsen revenue losses for distribution companies.
