World Bank: Fuel Subsidy Removal To Reduce Money Supply In Nigeria, Raise Inflation Rate

Nigeria borrowed N1.3tn in four years to subsidise electricity – World Bank

3 mins read

The World Bank has said that the Federal Government has borrowed a total of N1.3tn since 2017 to ensure that generation companies and gas suppliers received enough payments to continue generating electricity.

The bank disclosed this in its ‘Resilience through Reforms’ report.

The report said the power sector in Nigeria will cost the Federal Government an additional N3.08tn through 2023 if current performance levels and low tariffs persist.

It said, “To ensure that Gencos and gas suppliers receive enough payments to continue generating electricity, since 2017 the FGN has borrowed a total of N1.3tn ($4.2bn).

“In 2019 total FGN support reached N524bn ($1.7bn), 0.4 percent of GDP – higher than the N428bn budget for health and just 20 percent less than the N650bn budgeted for education.”

According to the bank, despite the fact that the six generation companies and eleven distribution companies have been privatised, the Federal Government through the Nigerian Bulk Electricity Trading Company buys electricity from the GENCOs and independent power producers before reselling to the Discos.

The report noted that the government, through the Nigeria Electricity Regulatory Commission, regulates tariff in the sector rather than allow market forces to determine it, adding that the Transmission Company of Nigeria was still strictly government-owned.

The report said that Nigerians pay less than the cost of production for electricity and that this resulted in revenue shortfall.

The FG, from 2015 through to 2019, paid N1.68tn as a cumulative tariff shortfall, adding that because of foreign exchange depreciation and rising domestic inflation, tariff shortfalls had also been on the rise.

The bank said, “Every Nigerian who receives electricity from a Disco pays less for electricity than the cost of supplying it.

“However, 80 percent of the spending on tariff shortfalls benefits the richest 40 percent of the population; only eight percent benefits the bottom 40 percent, and of this, less than two percent benefits the poorest 20 percent.

READ ALSO  Ex-NBA President Akpata Emerges Labour Party's Guber Candidate In Edo

“Significant resources spent on funding tariff shortfalls disproportionately benefit the relatively wealthy who have access to the grid and use more electricity so that ultimately, a big chunk of government support goes to those who do not really need help with paying bills.”

The report said that 43 percent of the population (85 million people) lacked access to grid electricity, making Nigeria the nation with the world’s largest energy access deficit.

It said access to grid electricity for the nation’s poorest (about 40 percent of the total population) is 31 percent.

The report noted that there are over 22 million gasoline generators that power about 26 percent of all households and 30 percent of Micro, Small, and Medium Enterprises in the nation.

It said the generating sets generated eight times more electricity than the national grid.

About 1,500 deaths annually were linked to the inhalation of smoke from the sets.

According to the report, in 2018, Nigerians spent about N3.7tn on the purchase and operation of the generating sets.

Nigeria loses between N7tn and N10tn annually to unreliable electricity supply, the report said, adding that this was about five to seven percent of the Gross Domestic Product of the nation.

It said Nigeria had about 12,500 MW of installed capacity, dominated by natural gas, 88 percent, with hydro making up the rest.

It noted that in 2020, over 51 percent of this capacity was not available due to maintenance and repair work.

Only an average of just 4,087 MW was available for generation out of the 6,158 MW, because of both insufficient gas supply, transmission and distribution constraints, and the inability of DISCOs to purchase power, it added.

READ ALSO  Food Crisis: Nigeria Customs Sells Seized Items, A Bag Of Rice For N10,000

Installed capacity functioned at 33 percent in 2020. Of the 4,087MW of generation capacity that was available, only 32,181-gigawatt hours (GWh) of electricity was generated and sent to the DISCOS.

The report said seven percent was lost in transmission, leaving the DISCOS with 30,000 GWh, three percent above the benchmark.

World Bank said distribution network losses were also quite high: The Discos delivered only 75 percent of the electricity they received, losing 7,656 GWh to poor infrastructure and theft. Thirty-two percent of electricity was lost during transmission and distribution.

In 2020, Discos billed 22,163 GWh of electricity to their customers (60 percent of whom were not metered). Ideally, this should have generated N816bn in revenue for the DISCOs, but they were only able to collect N542bn as revenue, the report said.

The FG launched an N23tn Nigerian Economic Sustainability Plan to assuage the effect of the COVID-19 pandemic on the economy in July 2020, the report recalled.

The bank said the economic recovery was only possible when there was access to electricity, leading to a sufficient power supply, and a financially viable power sector.

According to the World Bank, Nigeria needs to connect 500,000 to 800,000 households every year to achieve universal access to electricity by 2030.

It said the government has to show real commitment to start turning around the power sector by taking the critical actions it set out in its Power Sector Recovery Programme more seriously.

It said, “The FGN has targeted reducing new tariff shortfalls from N502bn in 2020 to less than N300bn in 2021 in its PSRP Financing Plan as it moves the power sector towards full cost recovery and a fair electricity pricing policy – the transition to service-based tariff and the increased payment.

READ ALSO  Forex Crisis: Go After Powerful Forces In Parallel Market Strangulating Naira, Don Tells Nigerian Govt

“Nigeria is a critical member of the West Africa Power Pool, the regional market launched in 2018, which can significantly improve the electricity supply not just in Nigeria but throughout all of West Africa.

“By the mid-2020s, it is expected that all 14 countries in the WAPP will be interconnected; efforts are already underway to increase the capacity of the network and to reinforce it in order to increase domestic supply and accrue the benefits of regional trade,” the World Bank added.

Support Investigative Journalism and Mentorship

Courageous Journalism of Truth,Transparency and Development is in the DNA of Prime Business Africa; By donating as little as N1000 or $1 today, you are helping to keep credible journalism and life-changing information free for all.

+ posts