Nigeria to cut electricity subsidy to ease pressure on public finances

By Felix Onuah

ABUJA (Reuters) -Nigeria plans to axe an electricity subsidy for 15% of consumers to reduce its 3.3 trillion naira ($2.6 billion) cost, part of a series of reforms to ease pressure on public finances, presidential spokesperson Bayo Onanuga said on Tuesday.

Onanuga said the government was under pressure to allow a price increase in the electricity sector as it only budgeted 450 billion naira for the subsidy this year.

He did not say when the tariff increase would come into effect, but said that when it did the government expected to save close to 1.1 trillion naira per year.

Nigeria last reviewed electricity tariffs in 2020, Onanuga said, adding the proposed increase would help businesses recover costs and boost investment.

“With the huge subsidy burden and high cost of gas … the current electricity tariff is not realistic,” he said.

President Bola Tinubu embarked on Nigeria’s boldest reforms in decades last year after he scrapped a popular but costly fuel subsidy and allowed the currency to devalue sharply.

The reforms Tinubu hopes will revive growth in Africa’s biggest economy have stoked inflation to more than 30% and worsened a cost of living crisis, angering workers.

Onanuga said only 15% of consumers, accounting for 40% of electricity consumption, would be affected.

Nigeria’s power sector faces a myriad of problems including a failing grid, gas shortages, high debt and vandalism. The country has 12,500 megawatts of installed capacity but produces only about a quarter of that, leaving many reliant on expensive diesel-powered generators.

Also, state-controlled power tariffs are too low to allow distribution companies to recoup costs and pay generating companies – leaving the sector with ballooning debts.

Onanuga said the government would consider helping generating companies to offset around 1.5 trillion naira of debt owed to the country’s bulk electricity purchaser.

($1 = 1,280.00 naira)

(Reporting by Felix OnuahWriting by Chijioke OhuochaEditing by Sharon Singleton and Mark Potter)


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