Former Acting Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr Anthony Akah, has said Nigeria’s electricity subsidy regime is unsustainable and must give way to cost-reflective tariffs supported by targeted social welfare, as fresh data showed the Federal Government spent ₦1.98 trillion subsidising power within 12 months.
Speaking in an interview with ARISE News on Thursday, Akah said while subsidies were introduced to cushion Nigerians from the shock of higher electricity tariffs, the current structure places an excessive and growing burden on government finances and deepens liquidity challenges across the power value chain.
“The subsidy that the Federal Government introduced is to cushion the impact of cost-reflective tariffs on most Nigerians,” Akah said. “But fundamentally, while subsidy is seen as essential by some, it is definitely not sustainable.”
Quarterly reports released by NERC show that electricity subsidies climbed sharply despite tariff increases for some consumers, particularly Band A customers. The subsidy bill rose from ₦471.69 billion in the fourth quarter of 2024 to ₦536 billion in the first quarter of 2025, eased slightly to ₦514 billion in the second quarter, and declined to ₦458 billion in the third quarter, bringing the total to ₦1.98 trillion. The regulator said subsidies remained necessary because tariffs for most customer categories were still below cost-reflective levels.
Akah said the path forward must involve a deliberate exit from blanket subsidies to a tariff regime that reflects the true cost of electricity generation, transmission and distribution.
“The pathway to go is for us to be able to move away from a highly subsidised electricity tariff to a full cost-reflective tariff,” he said. “A lot of tariffs are frozen and do not reflect the realities of production, generation, distribution and transmission, especially for Band B down to Band E customers.”
He proposed replacing broad-based subsidies with a targeted support mechanism similar to models used in other countries.
“What the government or the regulator could do at the right time is to remove these subsidies and introduce something like a Power Consumer Assistance Fund,” Akah explained. “It is also a subsidy, but it is a targeted subsidy. What we have now is almost across the board, and that is why the volume the government is paying is quite huge.”
Akah said such a fund would protect vulnerable consumers while ensuring that electricity tariffs remain economically viable.
“We need to recalibrate the tariff in a manner that gives us cost-reflective pricing while providing social welfare and social support systems, as is done in places like Brazil through consumer assistance funds,” he said.
Beyond subsidies, Akah said the electricity sector’s most pressing challenge remains liquidity, driven by weak revenue collection, high losses and structural inefficiencies.
“One of the major problems we have in the sector is liquidity,” he said. “This arises from average technical, commercial and collection losses. Distribution companies find it difficult to collect the revenue they ought to collect, and when they cannot, it affects liquidity that flows down to generation companies, transmission and other sector players.”
He added that losses must be factored into tariff modelling, but failure to recover revenues leaves the entire system underfunded.
“When distribution companies cannot collect enough revenue, it affects liquidity across the value chain,” Akah said. “You also have gas supply problems inhibiting optimal power production, and tariffs that are still not cost-reflective. All of this reduces the volume of money coming into the system.”
Addressing concerns that cost-reflective tariffs have been discussed for years without clear implementation, Akah said electricity pricing follows the same logic as any other product.
“Electricity is a product, and there are costs involved,” he said. “The regulator ensures that only costs that are prudently incurred are allowed. Distribution companies cannot just present any cost to the regulator; those costs must be necessary and reasonable.”
He explained that tariffs must also be reviewed periodically to reflect changes in foreign exchange, gas prices and other inputs, noting that government intervention through subsidies has masked these realities.
“What has happened over time is that tariffs are kept at a certain point while government provides subsidies to bring them up to cost-reflective levels,” Akah said. “That is not sustainable.”
Akah also identified poor metering as a critical obstacle to tariff reform and consumer confidence.
“Metering is a major issue,” he said. “If you don’t have rapid metering of customers, it is difficult for distribution companies to collect revenue, and it is also difficult to gain the confidence of customers to pay.”
He stressed that accurate metering is central to resolving losses, improving collections and restoring trust in the system.
“Metering affects a whole lot of things,” he said.
The Federal Government currently owes generation companies significant arrears, adding to pressure on the sector, with officials acknowledging that subsidies cannot be sustained indefinitely.
Akah concluded that only a combination of cost-reflective tariffs, targeted social protection and structural reforms would stabilise Nigeria’s electricity market.
“We need to recalibrate tariffs, ensure social safety nets for the vulnerable, and fix the structural issues,” he said. “That is the only way the system can work.”
Boluwatife Enome
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