Electricity subsidy: FG’s planned phase-out in 2027

THE Federal Government’s announcement that it plans to phase out electricity subsidies from 2027 deserves serious scrutiny, not least because electricity remains one of Nigeria’s most unreliable essential services. Minister of Power, Chief Joseph Tegbe, says the ministry has President Bola Tinubu’s mandate to clear legacy debts and establish sustainable structures to prevent further accumulation. According to the government, its electricity subsidy obligation in 2025 alone was ₦1.928 trillion. Tegbe has also said there is no immediate plan to increase tariffs, while promising improved electricity supply, universal metering and the elimination of estimated billing. These are reassuring promises. But Nigerians have heard similar promises about electricity before. The first question is basic: what exactly is the Federal Government subsidising?

Electricity subsidy broadly represents the difference between the cost-reflective tariff determined by the regulator and what government permits certain categories of consumers to pay. Government assumes responsibility for the shortfall. There is a legitimate argument that such an arrangement cannot continue indefinitely because debts accumulate and the electricity industry becomes financially unsustainable. But government must explain how the ₦1.928 trillion figure was calculated and, more importantly, what inefficiencies are embedded in the costs upon which the subsidy is based. Nigeria’s electricity problems are not merely financial. Generation remains inefficient, gas constraints persist; transmission capacity is inadequate; and distribution is plagued by technical and commercial losses. If these inefficiencies are embedded in the so-called cost-reflective tariff, subsidy removal could simply transfer the financial consequences of an inefficient electricity system from government to households and businesses.

Nigeria has about 13,625 megawatts of installed grid-connected generating capacity, but only a fraction is routinely available. The Nigeria Electricity Regulatory Commission (NERC) reported average available capacity of just 4,286 MW in April 2026. Whatever is generated must still pass through transmission and distribution networks before reaching consumers. The Transmission Company of Nigeria (TCN) itself recently said its claimed transmission capability exceeding 8,700 MW was simulated and had not been physically tested; its highest actual wheeling record remains 5,801.84 MW. What, therefore, are Nigerians being asked to pay the full cost of? Increasing tariffs does not repair turbines, supply gas, strengthen transmission lines, replace overloaded transformers, or eliminate distribution losses. A cost-reflective tariff should reflect efficient costs, not become a mechanism for passing institutional and operational inefficiencies to consumers.

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There is also the reality of what Nigerians already pay for electricity. Millions of households pay DisCos and still buy petrol or diesel for generators. Others spend heavily on inverters, batteries and solar panels. Businesses maintain parallel electricity systems simply to remain operational. If subsidy removal means that Nigerians pay higher tariffs while continuing to bear these enormous self-generation costs, it would be a particularly harsh reform. Higher tariffs ought to purchase better electricity. The Band A arrangement already illustrates the problem. Band A customers are supposed to receive at least 20 hours of electricity daily and pay substantially higher tariffs. Yet, the lived experience of many Band A customers shows that such categorisation does not itself guarantee efficient supply. Consumers paying premium tariffs should consistently receive premium service. Government must therefore tell Nigerians plainly what comes after subsidy removal. Will households receive substantially more reliable electricity?

There is also the question of metering. Millions of registered electricity customers remain unmetered. How can government demand full cost recovery from consumers whose consumption cannot even be accurately measured? Universal metering and the elimination of estimated billing should not merely accompany subsidy reform; they should precede full cost recovery. Metre first, measure accurately, then bill. Nigeria also supplies electricity to neighbouring Benin Republic, Togo and Niger Republic, whose utilities owe Nigeria substantial sums for electricity supplied. Regional electricity trading is not inherently objectionable, but government cannot insist on uncompromising commercial discipline from Nigerian households while failing to collect promptly from international customers. Tegbe’s assurance that subsidy will disappear without an immediate tariff increase equally requires clarification. If government currently pays the difference between the cost-reflective tariff and what consumers pay, who assumes that difference when government withdraws? Unless electricity-sector costs decline or another financing mechanism replaces the subsidy, somebody eventually has to pay. There are wider dangers. Several DisCos are already financially distressed, some having experienced creditor or receivership interventions. GenCos are owed substantial sums. Abrupt subsidy withdrawal without resolving debts, losses and poor collections could deepen the industry’s financial difficulties. Conversely, sharply higher tariffs without improved service could encourage electricity theft, metre bypass and non-payment, further destabilising the system.

Then there is the social question. Nigerians have already absorbed the consequences of petrol subsidy removal. Electricity is another fundamental input into virtually every aspect of economic life. If government withdraws support from both fuel and electricity, ordinary Nigerians are entitled to ask where it is cushioning the cost of essential energy for vulnerable citizens. Governments routinely provide tax incentives, concessions and waivers to businesses and other economic actors. What corresponding protection is available to the poor? There is no absolute free market anywhere, particularly in electricity. Governments regulate power systems, finance infrastructure and protect vulnerable consumers precisely because electricity is essential to modern life. Nigeria can pursue financially sustainable tariffs without abandoning low-income households. Properly targeted support or lifeline tariffs should remain available to those genuinely unable to bear full costs.

Before 2027, the Federal Government should therefore publish a transparent subsidy-removal roadmap. It should explain how the ₦1.928 trillion subsidy was calculated, what inefficiencies are embedded in sector costs, how debts will be resolved, when universal metering will be achieved, what improvements consumers should expect, and how vulnerable households will be protected. A state that cannot provide reliable electricity has a fundamental capacity problem. Making unreliable electricity more expensive does not solve that problem. The bargain must be clear: if Nigerians are required to pay more, they must receive more electricity. Otherwise, subsidy removal will amount to little more than transferring the cost of the power sector’s failures to the Nigerian consumer.