World Bank Survey Reveals That FG Spends N568.5B Annually on Power Tariff Shortfalls

The Federal Government of Nigeria is spending $1.5bn (N568.5bn at N379/$ exchange rate) annually to fund electricity tariff shortfalls, the World Bank has said.

According to the global financial institution, this amount could further increase if the country fails to take the right action.

The bank disclosed this in its enlarged report on Nigeria Power Sector Recovery Programme.

“FGN (Federal Government of Nigeria) is spending $1.5bn per year to fund tariff shortfalls and this could continue to rise if action isn’t taken,” the bank stated in the document.

The World Bank said Nigeria’s power sector was operationally inefficient with unreliable supply exacerbated by high losses and lack of payment discipline.

Picking on the various arms of the sector, the bank stated that power generation was characterised by high non-available capacity due to the fact that many plants were out on fault, damage, maintenance, major overhaul, etc.

“Gas and transmission constraints lead to non-operational capacity. Resolving policy/regulatory challenges and Disco (distribution companies) issues are key to free up stranded capacity,” the bank stated.

In the transmission sector, the bank said infrastructure in this arm of the industry remained inadequate and congested, stressing that investments in upgrades and maintenance were required.

In the power distribution arm, the bank observed that the Discos on average currently report 50 per cent Average Technical Commercial and Collection losses.

It said this was far above the less than 15 per cent international good practice and the 26 per cent that was allowed in the sector’s Multi Year Tariff Order.

The bank said, “For every ₦10 worth of electricity received by Discos, ₦2.50 was lost due to energy theft and poor distribution infrastructure.

“This reflects low investments in distribution networks and metering creating lingering liquidity challenges.”

On the policy and regulatory environment, the bank stated that there had been inconsistent implementation of tariff regulation, enforcement of market contracts, and policy direction.

It said Discos on average reported 50 per cent ATC&C losses which meant that only half of the energy generated led to collected revenue.

The bank stated that the capital expenditure allowance for all 11 Discos combined was N56bn and that this was far below what was needed.

On electricity access, the bank stated that Nigeria now had the largest number of un-electrified people globally and the trend was worsening.

It noted that of the electrified, the supply was very unreliable with widespread blackouts.

It stated that a holistic approach was necessary to address the power sector situation in a sustainable manner.

The bank, however, stated that it had proposed engagement to help address the concerns in Nigeria’s power sector.

It said the proposed engagement under two streams were aimed to provide holistic support for addressing key challenges through results-based lending.