Band A power users subsidised others with N101bn – Report

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The Federal Government’s electricity subsidy is disproportionately benefiting middle-income electricity consumers, as Bands B and C enjoyed about 70 per cent of the N1.93tn subsidy paid in 2025, a new report has stated.

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It also stated that consumers in Nigeria’s highest electricity service category, Band A, effectively contributed an estimated N101bn towards subsidising customers in lower tariff bands in 2025, rather than receiving any portion of the Federal Government’s electricity subsidy.

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The report by ZKJ Energy Partner Limited, obtained by our correspondent on Monday, said Band B consumers received an estimated N741bn, representing 38 per cent of the total subsidy, while Band C received N609bn, or 32 per cent.

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It said the finding challenged the assumption that the electricity subsidy was primarily supporting the poorest consumers, noting that Bands D and E, despite having wider gaps between their tariffs and electricity generation costs, consumed much less electricity.

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According to the report, Band A customers, who are guaranteed a minimum of 20 hours of electricity supply daily, paid tariffs slightly above the estimated cost of supplying them with power.

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As a result, the report said, Band A did not benefit from the subsidy and instead generated a surplus that effectively helped to offset the cost of subsidising consumers in Bands B, C, D and E.

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“Band A pays just above cost, so it receives no subsidy; it contributes N101bn that offsets the rest,” the report stated.

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The finding means that while the Federal Government’s electricity subsidy is generally viewed as a government-funded intervention to protect consumers from cost-reflective electricity prices, part of the support for lower service bands is effectively financed through the higher tariff paid by Band A consumers.

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According to the analysis, the gross subsidy requirement would have been about N2.03tn before accounting for the N101bn contribution from Band A. The report said the contribution from Band A therefore reduced the net subsidy requirement to about N1.93tn.

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“Band A receives nothing; it pays just above cost and effectively returns N101bn, trimming the gross N2.03tn subsidy to the N1.93tn net figure,” it stated.

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The report also stated that Band D received N452bn, representing 24 per cent of the subsidy, while Band E received N227bn, or 12 per cent. “Band B is the single largest beneficiary, N741bn (38 per cent of the total), followed by Band C at N609bn (32 per cent). Together the two mid-bands take 70 per cent,” it stated.

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The report said Band A, which enjoys a minimum supply target of 20 hours daily, was the only category that did not receive a subsidy because its tariff was above the estimated cost of generation.

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It estimated that Band A effectively contributed N101bn to the electricity market through cross-subsidisation, reducing the gross subsidy requirement of about N2.03tn to the net N1.93tn recorded in 2025.

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“The subsidy is real and regressive by design: cost-to-serve rises A > B > C > D > E, yet tariffs fall in the same direction,” the report stated.

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It explained that electricity generation costs increased as supply hours rose because additional demand was increasingly met by more expensive generation plants.

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Under its merit-order model, the analysis ranked power plants from the cheapest to the most expensive and allocated electricity in four-hour rounds, ensuring that every tariff band received its initial four hours from the cheapest available generation before progressively more expensive plants were brought into the system.

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The report estimated that Bands B to E paid between N16 and N22 per kilowatt-hour below their generation costs before transmission and distribution expenses and the impact of aggregate technical, commercial and collection losses.

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It further stated that the subsidy burden was confirmed by the Nigerian Electricity Regulatory Commission’s first-quarter 2026 data, which showed that the Federal Government covered N358.32bn, representing 51.95 per cent of total generation costs, through explicit tariff support.

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The report also raised concerns about the uniformity of electricity tariffs across distribution companies, arguing that consumers in poorly performing networks were shielded from the consequences of high losses.

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It cited Yola Electricity Distribution Company, with an estimated 44 per cent loss level, and Ikeja Electric, with about 14 per cent, as examples of the disparity.

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“Consumers in poor-performing franchises face no price signal to protest inefficiency, so ATC&C losses there keep rising,” it stated, advocating decentralised, performance-based regulation of distribution companies.

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The analysis also identified inadequate transmission and distribution infrastructure and gas supply constraints as bigger problems than the cost of merit-order distortions. “Cheap capacity that cannot be wheeled to load is not really cheap,” the report stated.

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It recommended expanding transmission and distribution capacity, securing firm gas supplies, reducing ATC&C losses and adopting loss-benchmarked regulation before relaxing must-run generation arrangements.

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Nigeria’s electricity subsidy has remained a major fiscal burden following the Government’s decision to keep electricity tariffs below cost-reflective levels for many consumers. The current tariff structure places customers in Bands A to E according to their guaranteed supply hours, with Band A receiving the highest minimum supply commitment.

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