FG faces fiscal pressure as electricity subsidy jumps threefold

The federal government is facing mounting fiscal pressure after electricity tariff subsidies surged nearly threefold in two years, from N610 billion in 2023 to N1.92 trillion in 2025, as the gap between the true cost of power and what consumers actually pay continues to widen at an alarming pace.

Quarterly data released by the Nigerian Electricity Regulatory Commission (NERC) shows the government spent N536.4 billion covering electricity shortfalls in the first quarter of 2025 alone, before the burden eased slightly through the year, falling to N514.35 billion in the second quarter, N458.75 billion in the third quarter, and N418.79 billion in the fourth quarter covering October through December.

The figures mark a watershed moment for Africa’s largest economy, which has for decades grappled with an underfunded power sector unable to deliver reliable electricity to its 220 million people.

Despite a series of reforms aimed at phasing out subsidies and attracting private investment, the cost borne by the public purse has never been higher.

“These numbers reflect a fundamental mismatch between policy intent and execution,” said one Lagos-based energy economist who asked not to be named because they advise government entities. “You cannot reform a sector and still shield consumers from the full cost of that reform indefinitely.”

The subsidy surge did not happen overnight. Historical data revealed a sector that has lurched between fiscal restraint and expenditure spikes for nearly a decade, buffeted by currency devaluations, gas supply shortfalls, infrastructure decay, and shifting political priorities.

Subsidies stood at N230 billion in 2015 before climbing steadily to N530 billion by 2019, as the naira weakened and operational costs for distribution companies rose.

The figure dipped sharply in subsequent years, to N510 billion in 2020, then to N250 billion in 2021 and a decade-low of N140 billion in 2022, a period that coincided with tighter fiscal management and some regulatory tightening under the Buhari administration.

But 2023 marked a turning point. As President Bola Tinubu took office and launched an aggressive economic reform agenda that included removing petrol subsidies and floating the naira, electricity costs for distribution companies skyrocketed.

The naira’s sharp devaluation raised the cost of imported equipment, gas-to-power contracts priced in dollars, and turbine maintenance.

The electricity tariff subsidy jumped to N650 billion in 2023 and then exploded to N1.94 trillion in 2024, a figure that 2025’s N1.92 trillion only narrowly undercuts.

NERC’s data specifically attributes the subsidy to the gap between cost-reflective tariffs, the rates that would fully cover the expenses of generating, transmitting, and distributing power, and the approved tariffs that customers actually pay.

For most residential and small commercial customers, known as Band B through E, tariffs remain significantly below cost-reflective levels. Only the highest-consumption Band A customers, who receive at least 20 hours of power daily, pay anything close to full cost.

The band-based tariff system, introduced in April 2024, was meant to establish a pathway to full cost recovery while protecting lower-consumption households.

But with naira depreciation and gas pricing pressures continuing to drive up the cost-reflective benchmark, the shortfall the government must plug has grown faster than tariff increases can absorb.

Any attempt to push tariffs higher risks immediate political backlash in a country where reliable power is already a luxury.

Nigeria’s national grid regularly supplies less than 5,000 megawatts of electricity for a population that economists say requires at least four times that amount. Businesses routinely spend more on diesel generators than on grid electricity.

The subsidy’s scale poses a serious challenge to the Tinubu administration’s broader fiscal consolidation agenda. Nigeria’s revenue-to-GDP ratio remains one of the lowest in the world, and the government is simultaneously trying to service a swelling debt burden, fund capital expenditure, and reduce the fiscal deficit.

“Electricity subsidies of nearly N2 trillion annually consume resources that budget planners would prefer directed toward infrastructure or social transfers,” said Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies.

The government has not publicly outlined a timeline for closing the subsidy gap, and NERC has yet to announce any tariff review for the first half of 2026.

Industry insiders say any move to raise rates significantly will need to be accompanied by measurable improvements in supply hours, a condition the distribution companies have so far struggled to meet.