Nigeria Faces Escalating Budget Deficit as Electricity Subsidy Skyrockets in 2024

The federal government’s budget deficit is on track to widen as the electricity subsidy to be incurred this year has more than doubled following last week’s suspension of tariff hike for consumers.

The federal government’s N28.8 trillion budget for this year has a deficit of N9.8 trillion, which will be financed mainly by new borrowings.

Data from the new tariff plan for the 11 electricity distribution companies (DisCos) in the country showed the federal government would pay N1.67 trillion as electricity subsidy in 2024, even though the Nigerian Bulk Electricity Trading Plc’s budget only showed a subsidy plan of N450 billion.

The 2024 electricity subsidy is 170 percent higher than the N619 billion reportedly paid last year, according to findings by BusinessDay.

Further breakdown showed the customers of Ikeja DisCo will benefit the most from the plan, with around N238 billion earmarked as subsidies, up from N77.41 billion reportedly paid in 2023. This is closely followed by the Abuja Electricity Distribution Company (AEDC), which is projected to receive around N233 billion as an electricity subsidy.

Yola Electricity DisCo has the least amount of subsidy, with N64.48 billion earmarked as opposed to N45.95 billion reportedly paid as subsidy in 2023.

Analysts said the problem with that plan is not only its lack of viability but also that it may be the starting point for another expensive subsidy.

“The rich, accounting for only 20 percent of electricity consumers, are reaping more significant rewards from subsidies than the intended beneficiaries,” said Adetayo Adegbemle, convener and executive director of PowerUp Nigeria, a power consumer advocacy group.

He said the electricity subsidy in Nigeria has become a financial burden that “is no longer sustainable”.

“Urgent action is needed to address the disparities in subsidy distribution, prevent further strain on government finances, and redirect resources to areas where they can have a more significant impact,” he added.