The Federal Government spent N536.4 billion on electricity subsidies in the first quarter of
2025, despite grappling with over N4 trillion in outstanding debt to power generation
companies.
This was revealed in the latest report by the Nigerian Electricity Regulatory Commission
(NERC), which showed a N64.7 billion increase from the N471.69 billion subsidy recorded in Q4 2024.
NERC noted that the Q1 2025 subsidy accounted for 59.16% of the total invoice issued to
power generation companies (GenCos) during the period. The commission explained that in the absence of cost-reflective tariffs, the government covers the shortfall between the actual cost of electricity and the tariffs charged to consumers through subsidy payments.
For administrative efficiency, NERC clarified that the subsidy is applied specifically to the
generation cost owed by distribution companies (DisCos) to the Nigerian Bulk Electricity
Trading Plc (NBET), and is reflected as a DisCo’s remittance obligation.
To streamline subsidy administration, the government adopted the DisCo Remittance
Obligation framework, which specifies how much each distribution company (DisCo) must
pay to the Nigerian Bulk Electricity Trading Plc (NBET), based on the revenue their approved tariffs can generate.
The shortfall representing the subsidy is covered by the Federal Government and paid
directly to NBET, which then disburses the funds to power generation companies (GenCos).
NBET, in turn, invoices the subsidy amount to the Federal Ministry of Finance for payment.
However, Minister of Power Adebayo Adelabu has repeatedly acknowledged that the
government has been unable to fully meet these obligations, resulting in escalating debts
across the electricity value chain.
According to the Nigerian Electricity Regulatory Commission (NERC), the DisCo Remittance
Obligation (DRO) reflects the portion of the total GenCo invoice that distribution companies
(DisCos) are required to pay to the Nigerian Bulk Electricity Trading Plc (NBET), based on
what their approved tariffs can cover. In addition, DisCos are mandated to fully remit
invoices issued by the Market Operator (MO) for transmission and administrative service
charges.
NERC explained that the DRO framework, which replaced the previous Minimum
Remittance Obligation model in January 2024, was introduced to curb the accumulation of
unpaid subsidy debts on DisCos’ balance sheets. The commission noted that these
outstanding debts had previously undermined the financial viability of DisCos, limiting their
ability to secure funding for crucial investments in their distribution infrastructure.
Under the new regime, DisCos are expected to remit 100 percent of their DRO obligations,
ensuring better financial discipline and reducing reliance on government subsidies.
