The Minister of Power, Chief Adebayo Adelabu, has declared that Nigeria should transition to a full cost-reflective tariff regime to address the challenges plaguing the country’s electricity sector.
During a nationwide inspection of power installations, Adelabu expressed deep concerns over the poor electricity supply caused by outstanding subsidy debts and the under-capacity utilization of National Independent Power Plants (NIPPs) managed by the Niger Delta Power Holding Company Plc (NDPHC).
The Minister’s visit included assessments of the 750 megawatts Olorunsogo Power Generating Plant in Ogun State and the 500 megawatts Omotosho Generating Plant in Ondo State.
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Following the inspections, Chief Adelabu emphasized the need for the federal government to either fulfill subsidy promises or transition to a fully cost-reflective tariff system.
“We have been to Olorunsogo and we are now in the Omotosho Power Plant. These are big power plants. I am impressed with the size and the technology of the power plants here. Their operational history is also impressive,” said Chief Adelabu during his visit.
He continued, “And we also want to appeal to the federal government that once there is a subsidy promise, it has to be fully funded. If our government is not ready to fund subsidies, it is actually better for us to migrate to a fully-cost-reflective tariff, because liquidity is a major issue in the sector, which has led to a huge debt being owed power generating companies.”
The Minister highlighted the need to address the outstanding subsidy debts, as they contribute to a cascading effect on the entire power supply chain. Unpaid debts hinder power-generating companies from settling their dues with gas suppliers, leading to reluctance to provide regular gas supply, exacerbating the overall power supply situation.
Acknowledging the financial challenges in the power sector, Chief Adelabu stated, “So where are these debts piling up? Where are they coming from? Part of it are the Discos owing some portion of these debts while the federal government is also owing a huge portion of these debts, which relate to the unfunded portion of the subsidy that they pledge.”
The Minister assured Nigerians of his commitment to resolving the situation through discussions with relevant stakeholders. He mentioned ongoing meetings with the Minister of Finance, Coordinating Minister of the Economy, Minister of Budget and National Planning, and the Special Adviser to the President on Energy.
These meetings aim to explore ways to inject liquidity into the sector and address outstanding debts owed to power-generating companies.
However, the Minister’s suggestion of a transition to a fully cost-reflective tariff has not been well-received by Nigerian electricity consumers. Many argue that they are already burdened with high bills, especially considering that around 60 percent of consumers are unmetered, receiving bills that do not accurately reflect their monthly consumption.
Nigeria currently generates approximately 4,000 MW of electricity, a significantly insufficient amount for its population of 206 million. Chief Adelabu attributed this shortfall to various factors, including underutilization of power facilities and inadequate gas supply to power plants.
“I am amazed at the level of underutilization of these power installations. Each of them operates below 25 per cent capacity, when we are still complaining that power generation is low in this country. The under-capacity utilization is due to a variety of reasons,” Chief Adelabu said.
To address the underutilization and gas supply challenges, the Minister said there is a need for collaboration with the Minister of State for Petroleum (Gas). He proposed a roundtable meeting to ensure regular gas supply to power-generating companies and ultimately improve the operational capacity of the plants.
While acknowledging that the government-owned generating companies are currently undervalued, Chief Adelabu argued that necessary investments and improvements should be made before considering their sale. He cautioned against selling these assets in their current state, stating that it would result in losses for the country.
In response to the gas supply challenges, Chief Adelabu assured Nigerians of improvements in nationwide power supply in the coming weeks. He attributed the recent drop in supply to shortages in gas supply to power-generating companies and pledged that a major part of the debts owed to the companies would be paid down in the next couple of days.
However, the Minister’s call for a transition to a cost-reflective tariff raises questions about the financial burden on consumers and the broader impact on the economy. It will also play a crucial role in shaping the future of Nigeria’s power sector.