
Nigeria plans to reduce its expensive electricity subsidy by targeting wealthier consumers. This move aims to ease pressure on public finances and revitalize the struggling power sector.
Presidential spokesperson Bayo Onanuga announced on Tuesday that the government will eliminate the subsidy for 15% of electricity consumers. While this group represents only a small portion of the population, they account for a significant 40% of electricity consumption. This targeted approach aims to minimize the impact on low-income Nigerians while still achieving significant cost savings.
The current subsidy costs the government a staggering 3.3 trillion naira ($2.6 billion) annually. Onanuga explained that the budgeted subsidy amount for 2024 is only 450 billion naira, highlighting the growing financial burden. The government expects to save roughly 1.1 trillion naira per year by removing the subsidy for wealthier consumers.
This reform follows President Bola Tinubu’s broader economic agenda, which includes tackling high inflation and a cost-of-living crisis. While previous reforms, like scrapping fuel subsidies and currency devaluation, have boosted inflation, the government hopes these actions will ultimately revive growth in Africa’s largest economy.
Nigeria’s power sector faces significant challenges, including an unreliable grid, gas shortages, and mounting debt. The country has the capacity to generate 12,500 megawatts of electricity but only produces a fraction of that amount. This deficit forces many Nigerians to rely on expensive generators, further straining resources. Additionally, government-controlled electricity tariffs are too low for power companies to operate profitably, leading to a vicious cycle of debt and underinvestment.
The government is reportedly considering measures to help generating companies manage their 1.5 trillion naira debt owed by the electricity purchaser. Addressing this debt burden is crucial for attracting new investment and improving the overall health of the power sector.