Electricity subsidy: Manufacturers, experts warn of higher costs, demand reliable power

Nigeria’s proposed electricity subsidy reform could increase production costs, worsen inflationary pressures and weaken manufacturers’ competitiveness unless the Federal Government guarantees more reliable power supply and introduces targeted support for vulnerable consumers, industry leaders and energy experts have warned.

The concerns come as the government considers options for reducing electricity subsidy payments in 2027, amid rising fiscal pressures and mounting costs associated with sustaining the power sector.

Data from the Nigerian Electricity Regulatory Commission (NERC) show that the Federal Government spent a combined N6.93 trillion on electricity subsidies between 2016 and 2025.

The expenditure rose sharply from N631.84 billion in 2023 to N1.85 trillion in 2024 and N1.93 trillion in 2025. The combined N3.78 trillion spent in 2024 and 2025 accounted for nearly half of the decade’s total.

The debate has revived comparisons with the removal of petrol subsidy in May 2023, which triggered significant increases in fuel prices and transportation costs.

National Bureau of Statistics data show that the average petrol pump price rose from N238.11 per litre in May 2023 to N545.83 in June, an increase of about 129 per cent. By May 2026, it had reached N1,596.25 per litre, representing an increase of approximately 570 per cent from the pre-removal level.

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However, experts caution that electricity subsidy reform could produce different consequences because electricity is a network-based service with limited consumer choice and persistent supply challenges.

Government rules out immediate tariff review

Adeola Adelabu, spokesperson to the Minister of Power, said discussions about reducing electricity subsidy shortfalls should not be interpreted as plans to increase tariffs.

“They have made it clear that they are not reviewing tariffs, so all the talks about electricity subsidy removal is unfounded,” he said.

According to Adelabu, the government is exploring ways to reduce costs across the electricity supply chain, particularly aggregate technical and commercial (AT&C) losses, which contribute to the tariff shortfall funded by the government.

He said reducing losses, improving efficiency and ensuring that distribution companies deliver electricity to customers capable of paying cost-reflective tariffs could reduce the government’s financial burden.

Manufacturers fear higher production costs

Segun Ajayi-Kadir, Director-General of the Manufacturers Association of Nigeria (MAN), said electricity accounts for roughly 50 per cent of production costs for Nigerian manufacturers, compared with less than 10 per cent in developed economies.

He disclosed that manufacturers spent approximately N1.11 trillion on alternative energy generation in 2024 and N1.35 trillion in 2025, reflecting the high cost of inadequate grid supply.

Ajayi-Kadir warned that withdrawing electricity subsidies without improving supply could force manufacturers to pay higher grid tariffs while continuing to depend on expensive diesel and gas generators.

He added that businesses might struggle to transfer the additional costs to consumers already affected by inflation and declining purchasing power.

For manufacturers to accept higher tariffs, he said, grid electricity must provide reliable supply for 20 to 24 hours daily, eliminating the need for costly backup generation.

Energy economist Wunmi Iledare said the success of electricity subsidy reform should be measured by whether consumers receive reliable and affordable power without being unfairly burdened.

He identified improved metering, revenue collection, reduced technical and commercial losses, and stronger electricity supply as essential measures for narrowing the tariff shortfall.

Dayo Ayuade, a professor of energy law at the University of Lagos, advocated a gradual reduction of subsidy payments alongside improvements in operational efficiency and service delivery.

He suggested that the government could progressively reduce AT&C losses over four years before implementing corresponding tariff adjustments linked to improved customer service.

Ayuade also called for targeted subsidies to protect low-income households, warning that an abrupt withdrawal could destabilise the electricity market.

He stressed that electricity subsidy reform should not replicate the petrol subsidy approach because consumers depend on designated distribution companies and cannot easily switch providers.

Ultimately, the experts said, reform should prioritise reliable supply, affordability and accountability rather than focusing solely on reducing government expenditure.