As more states prepare to join others in managing their various power markets under their own laws, state governments are preparing to remove electricity subsidies within their borders.
The states also announced that they would enact various electricity tariffs in their respective areas in a document produced by the Nigeria Governors’ Forum titled, “Development of the National Integrated Electricity Policy and Strategic Implementation Plan Policy Recommendations by State Governments to the Federal Ministry of Power.”
Their suggestions, according to PUNCH, were based on the Electricity Act of 2023 being passed. The current legislative foundation for the Nigerian electricity supply industry is the Electricity Act 2023, a federal statute that repeals the Electric Power Sector Reform Act.
A single, wholesale federal electricity market and two retail sub-national electricity markets make up the multi-tier framework for the electricity market that the EA 2023 envisions. Nevertheless, laws and regulations have a connection to both markets.
When states meet the standards outlined in the EA 2023, the Nigerian Electricity Regulatory Commission—an institution of the Federal Government—must transfer its regulatory authority to State Electricity Regulatory Commissions.
The governors urged the federal government to continue paying off the N4 trillion in legacy power sector debts in the NGF document that our correspondent in Abuja was able to obtain on Sunday. They emphasised that the market liabilities were created by the federal government under a single electricity market in NESI.
State governments stated that they were now free to enact laws pertaining to energy. On Sunday, the Federal Government, acting through the Federal Ministry of Power, acknowledged receipt of the document.
Commenting on winding down electricity subsidies, the NGF said, “Electricity is a commodity and a product that must be paid for by consumers. The states believe that electricity subsidies and other forms of financial interventions in the power sector by the Federal Government over the last 15 years have been inefficient and ineffective so far.
“Rather than improve the quality and reliability of service, electricity subsidies in the sector have been applied to cover inefficient costs and lack of service by Discos, TCN, Gencos and gas producers across the NESI.
“Moreover, the so-called electricity subsidies benefit only customers who are connected to the national grid and enjoy some form of supply reliability. Millions of households, particularly in underserved and unserved communities, pay more than twice the average true cost of on-grid supply.”
They said that in order to promote universal access to power, the 2001 National Electric Policy suggested limiting the use of subsidies.
“States agree with the retention of this policy,” the governors stated.
They added, “To this end, states recommend that wholesale and retail electricity subsidies to customers and across the NESI value chain are reduced and eventually eliminated over time, except for pre-defined customer categories or in line with national economic growth initiatives.
“Where electricity subsidies are deemed necessary, the states propose a cost of service analysis which will be conducted by the state to determine the cost of supply and arising electricity subsidies for each state.
They further stated that in order to ascertain the amount of subsidies necessary and the category or categories of consumers who would be eligible to receive electricity subsidies, the Federal Government’s methodology and criteria for applying electricity subsidies should be clear, transparent, and governed by a clear regulatory framework.
“The FMoP and NERC should also ensure that there should be no discrimination in implementing electricity subsidies, against states and regions, especially states and regions with more efficient electricity markets.
“It should also be noted that continuing electricity subsidies may undermine the viability and sustainability of state electricity markets.
“Thus, the Federal Government and states should collaborate in determining how any subsidy by the Federal Government is applied within a state electricity market. In this regard, the states propose a joint framework with the Federal Government for administering future electricity subsidies in a state electricity market,” the NGF stated.
