Nigeria: Buhari Government to Phase Out Electricity Subsidy from 2027

• Nigeria plans to phase out electricity subsidy payments from 2027 as part of efforts to address mounting debts in the power sector.
• The government has previously estimated that the subsidy burden stands at around N3 trillion as of February 2024, while GenCos are owed roughly N6.5 trillion in debts.
• President Bola Tinubu recently approved a N4 trillion bond programme for debt settlement and issued a second tranche worth about N729 billion to settle verified debts owed to power generation companies.

We have the mandate of Mr President to clear the legacy debt and come up with sustainable structures to make sure this doesn't pile up any more.

The impending phase-out of electricity subsidies in Nigeria has significant implications for consumers and the power sector as a whole. As the government prepares to remove the subsidy from 2027, it is essential to understand the context behind this decision. The move aligns with recommendations by the International Monetary Fund (IMF) for Nigeria to gradually remove electricity subsidies. This shift could lead to increased tariffs for consumers, potentially affecting their access to electricity services.

The government has previously estimated that the subsidy burden stands at around N3 trillion as of February 2024. Meanwhile, power generation companies (GenCos) are owed roughly N6.5 trillion in debts. The situation highlights the need for sustainable structures to manage the power sector's finances and prevent further accumulation of debt.

The Presidential Power Sector Debt Reduction Programme has been instrumental in addressing legacy debts in the sector. President Bola Tinubu recently approved a N4 trillion bond programme for debt settlement, with a second tranche worth about N729 billion issued in July 2023 to settle verified debts owed to power generation companies.

Minister of Power Joseph Tegbe disclosed the plan to phase out electricity subsidy payments during a media interactive session on Friday. The minister emphasized that consumers would not lose access to electricity services, assuring that the removal of subsidies would be gradual. Tegbe's comments come amid ongoing efforts to clear legacy debts in the sector.

The announcement aligns with the government's mandate to address mounting debts in the power sector. President Tinubu has directed ministries, departments, and agencies to use existing electricity laws to determine how subsidy costs should be shared among federal, state, and local governments in the 2026 budget. The move is seen as a crucial step towards making the power sector financially sustainable.

The government's efforts to clear legacy debts have been ongoing, with the issuance of a N501 billion inaugural bond under the Presidential Power Sector Debt Reduction Programme in January 2023. A second tranche worth about N729 billion was issued in July 2023 to settle verified debts owed to power generation companies.

The phase-out of electricity subsidies is not a new concept, as the IMF has previously recommended that Nigeria gradually remove these subsidies. The government's decision to align with this recommendation is a significant step towards making the power sector financially sustainable.

The Presidential Power Sector Debt Reduction Programme has been instrumental in addressing legacy debts in the sector. President Tinubu's approval of a N4 trillion bond programme for debt settlement and the issuance of a second tranche worth about N729 billion to settle verified debts owed to power generation companies demonstrate the government's commitment to clearing these debts.

The removal of subsidies will likely lead to increased tariffs for consumers, potentially affecting their access to electricity services. However, the gradual phase-out of subsidies is expected to mitigate this impact.

Lawyers advising clients in the Nigerian power sector should watch for the gradual phase-out of electricity subsidies from 2027, which may impact consumer access to electricity services and potentially lead to increased tariffs.

Source: Original reporting via Vanguard