Economy

Nigeria Federal Government borrowed #1.3tn in four years to subsidise power consumers, firms- World Bank

According to the World Bank, the Federal Government has borrowed a total of N1.3 trillion since 2017 to ensure that generation companies and gas suppliers receive adequate payments to continue providing energy.
This was stated in the bank’s report, “Resilience via Reforms.” If present performance levels and low prices continue, the power industry in Nigeria will cost the Federal Government an additional N3.08 trillion through 2023, according to the research.
“To ensure that Gencos and gas suppliers receive enough money to continue generating power, the FGN has borrowed a total of N1.3 trillion ($4.2 billion) since 2017,” according to the article.
“Total FGN support in 2019 was N524 billion ($1.7 billion), or 0.4 percent of GDP – more than the N428 billion budgeted for health and only 20% less than the N650 billion budgeted for education.”


Despite the fact that all six production firms and eleven distribution companies have been privatized, the Federal Government buys electricity from the GENCOs and independent power producers before reselling it to the Discos, according to the bank.
The government, through the Nigeria Electricity Regulatory Commission, regulates tariffs in the sector rather than allowing market forces to decide them, according to the research.
It went on to say that the Nigerian Transmission Company was still wholly controlled by the government. According to the analysis, Nigerians pay less for energy than the cost of production, resulting in a revenue gap.


The FG paid N1.68 trillion in tariff shortfalls from 2015 to 2019, it said, adding that tariff shortfalls had been on the rise due to foreign exchange depreciation and rising domestic inflation.
“Every Nigerian who gets energy from a Disco pays less for electricity than the cost of supplying it,” the bank stated.
“However, 80% of the money spent on tariff deficits goes to the richest 40% of the population; only 8% goes to the bottom 40%, and less than 2% goes to the poorest 20%.
“Significant resources spent on compensating tariff shortages disproportionately favor the comparatively wealthy who have grid access and use more electricity, resulting in a large amount of government assistance going to individuals who do not genuinely need help paying bills.”
According to the research, 43 percent of the population, or 85 million people, lack access to grid electricity, making Nigeria the country with the biggest energy access deficit in the world.
According to the report, just 31% of the country’s poorest people (about 40% of the entire population) have access to grid energy, according to the survey, there are more over 22 million gasoline generators in the country, which power around 26% of all households and 30% of all Micro, Small, and Medium Enterprises.
According to the report, the generating sets produced eight times the amount of electricity as the national grid.
According to the World Bank, inhaling smoke from the sets is responsible for approximately 1,500 deaths each year.


According to the report, Nigerians spent approximately N3.7tn in 2018 on the purchase and operation of generating sets.
According to the report, Nigeria loses between N7tn and N10tn per year due to unreliable electricity supply, which accounts for about 5% to 7% of the country’s GDP.
According to the report, Nigeria has approximately 12,500 MW of installed capacity, with natural gas accounting for 88% of the capacity and hydro accounting for the remainder.
According to the report, more than 51% of this capacity will be unavailable in 2020 due to maintenance and repair work.
It added that of the 6,158 MW available, an average of only 4,087 MW was available for generation due to insufficient gas supply, transmission and distribution constraints, and Discos’ inability to purchase power. In 2020, installed capacity was operating at 33%. Only 32,181 gigawatt hours (GWh) of electricity were generated and sent to the DISCOS out of the 4,087MW of available generation capacity.
According to the report, 7% was lost in transmission, leaving the DISCOS with 30,000 GWh, 3% above the benchmark.


According to the World Bank, distribution network losses were also quite high: Discos only delivered 75% of the electricity they received, losing 7,656 GWh due to poor infrastructure and theft. During transmission and distribution, 32% of the electricity was lost.
Discos billed their customers for 22,163 GWh of electricity in 2020. (60 per cent of whom were not metered). The DISCOs should have received N816 billion in revenue as a result of this, but they only received N542 billion, according to the report.
According to the report, the FG launched a N23tn Nigerian Economic Sustainability Plan in July 2020 to mitigate the economic impact of the COVID-19 pandemic. According to the bank, economic recovery can only occur if people have access to electricity, which leads to adequate power supply and a financially sustainable power sector.
Nigeria needs to connect 500,000 to 800,000 households each year to attain universal access to electricity by 2030, according to the World Bank.
The World Bank stated that the government must demonstrate genuine commitment to begin turning around the electricity industry by adopting more seriously the important initiatives outlined in its Power Sector Recovery Program.


“The FGN has set a target in its PSRP Financing Plan to reduce new tariff shortfalls from N502 billion in 2020 to less than N300 billion in 2021 as it moves the power sector towards full cost recovery and a fair electricity pricing policy – the transition to service-based tariff and increased payment,” it said.
“Nigeria is an important member of the West Africa Power Pool, a regional market that was created in 2018 and has the potential to greatly enhance electricity supply not only in Nigeria but across West Africa.
“By the mid-2020s, all 14 countries in the WAPP are projected to be interconnected; efforts are currently ongoing to improve the network’s capacity and fortify it in order to increase local supply and reap the benefits of regional trade,” the bank noted.
The Federal Ministry of Power, in response to reports that N1.3 billion was borrowed in 2017 to ensure that distribution companies and gas companies could supply electricity, claimed the money was released in two batches for gas payments and collection deficits.


The comments, according to Aaron Artimas, Special Assistant to the Minister of Power on Media, were made through the Nigerian Bulk Electricity Trading Company.
“In 2017, the government intervened, but it provided the money to NBET since the power producing businesses complained that they were not being compensated for the power they produce,” he explained.
“And the Discos were reporting that they had a collection deficiency. As a result, the gas suppliers exerted pressure on the government, threatening to stop supplying the Gencos if they were not paid.
“That is how the government came up with the first N700 billion intervention, and the second N600 billion investment in 2019.” This takes the total amount to N1.3 trillion, allowing Gencos to cover the cost of gas.”
According to Artimas, the government made the decision in response to public outrage that the sector, while being privatized, was underperforming.
He also mentioned that the government recently engaged in the sector by providing financing for meters in response to consumer complaints that millions of electricity users were not being metered.
The minister’s aide indicated that the government’s continuous engagement in the sector was justified due to the distributors’ weak remittances over the years, but that the distributors had begun to make improvement in remittances to the sector.

Compiled by Olusanya Olutayo

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