Nigeria’s Electricity Crisis Deepens: Why Cost-Reflective Tariffs Are Now Non-Negotiable
On June 27, 2025, Nigeria’s decades-long power shortages once again exposed the country’s broader economic malaise. Despite over ₦6 trillion in subsidies over the last ten years—including ₦2.4 trillion disbursed in 2024 alone—grid collapses and rolling blackouts remain routine. Millions of households and businesses still rely on costly diesel generators, undermining productivity and driving up inflation.
At the core of this dysfunction is a policy distortion: subsidized tariff bands that obscure the true cost of generation and deter fresh investment. Only “Band A” consumers pay rates close to market cost; Bands B through E enjoy subsidies of up to 67 percent. Yet chronic under-funding of these subsidies has saddled generation companies, gas suppliers, and distribution companies with more than ₦3 trillion in outstanding receivables—threatening the entire electricity value chain.
The federal government’s proposal to impose cost-reflective tariffs—potentially hiking customer bills by up to 66 percent—comes as both an economic imperative and a political lightning rod. As Special Adviser on Energy Olu Verheijen warns, “No investor, domestic or foreign, will commit capital to a market where pricing is opaque, returns are uncertain, and the rules shift with every election cycle.”
Manufacturers fret that steeper bills could squeeze margins and fuel inflation. But the true drag on industrial competitiveness is not tariffs; it’s unreliable supply. Nigerian firms currently divert billions every year to diesel generation—an unsustainable “workaround” that erodes their ability to compete in global markets.
Ultimately, cost-reflective pricing isn’t about making power more expensive—it’s about making it consistently available. By aligning tariffs with actual supply costs, Nigeria can unlock renewed private investment, stabilize the sector’s finances, and lay the groundwork for the country’s energy transition—essential steps toward achieving its 2060 net-zero emissions goal. The real question now is whether political leaders have the courage to implement reforms that, though unpopular, are vital for Nigeria’s economic future.
