On 3 April 2024 the Nigerian Electricity Regulatory Commission issued its April 2024 Supplementary Order and raised the tariff for Band A customers from about N68 per kilowatt-hour to N225. Band A covers customers on feeders that are supposed to receive an average of at least 20 hours of supply a day. NERC said the change affected only about 15 per cent of the customer population, with Bands B to E, the remaining 85 per cent, left on frozen tariffs. The commission estimated that the order would cut the 2024 electricity subsidy by about N1.14 trillion.
The increase is large in percentage terms. ThisDay calculated it at roughly 230 per cent. What matters more than the headline is the design. Nigeria has chosen not to raise tariffs across the board, which would have been politically explosive after the removal of the petrol subsidy in 2023 and the sharp fall in the naira. Instead it has tied a cost-reflective price to a promise of service. Our view is that this is the right instinct and a fragile mechanism. It makes reliability the thing customers pay for, which is correct. But it only works if the regulator can verify supply hours feeder by feeder and is prepared to downgrade feeders, and therefore cut distribution company revenue, when the promise is broken.
Why the subsidy had become unmanageable
Nigerian tariffs had been effectively frozen for about two years while the cost of gas, generation and foreign exchange rose. The gap between the cost-reflective tariff and what customers paid was being covered by the federal government. NERC officials said at the briefing that the monthly subsidy had reached about N240 billion by January 2024, and that if nothing changed it could reach around N2.9 trillion for the year. In January the commission had estimated the 2024 bill at N1.6 trillion, a figure overtaken by devaluation within weeks.
A subsidy of that size is not just a fiscal problem. In Nigeria it has been a liquidity problem across the whole power chain. When the government is late with its share, the Nigerian Bulk Electricity Trading company cannot pay generators in full, generators cannot pay gas suppliers, and gas suppliers deprioritise power stations in favour of export or industrial customers that pay on time. Available generation falls, supply hours fall, and the distribution companies collect even less. Each part of the chain blames the next. Moving the best-served customers to a cost-reflective price is an attempt to put real money into the top of that chain without asking the poorest households to pay first.
The logic of pricing by service band
The banding system was introduced by NERC in 2020 as part of the service-based tariff framework. Feeders are classified from Band A, with at least 20 hours of supply a day, down to Band E, with fewer than four. The idea is that customers who receive more reliable supply pay more, and those who are badly served are not charged for a service they do not receive.
The April order sharpens that link. Distribution companies are now under an obligation to deliver an average of at least 20 hours a day to Band A customers, measured over a week. NERC also gave the distribution companies mandatory targets for investment and for migrating more customers into Band A. That creates a commercial incentive that did not previously exist in any strong form: the distribution company earns substantially more from a customer it can serve reliably. In principle this rewards investment in feeders, transformers and metering, which is where much of Nigeria's supply problem sits.
There is a good case that many Band A customers can bear the price. They are disproportionately commercial users and better-off urban households, and a large share of them have been running petrol or diesel generators to cover outages. At the prices those fuels reached after subsidy removal, self-generation costs far more than N225 per kilowatt-hour. A reliable grid supply at that tariff is cheaper than the alternative they actually use.
Where the mechanism can break
The weakness is verification. The order depends on accurate knowledge of how many hours each feeder is energised and on the regulator acting on that information. Nigeria has a large metering gap, and many customers are still on estimated bills. Without meters, a customer on a Band A feeder cannot easily show that the promised hours were not delivered, and the distribution company has every incentive to keep feeders classified as Band A because that is where its revenue comes from.
There is also a supply-side risk. Twenty hours a day on Band A feeders requires enough generation and transmission to serve those feeders first. When gas supply to power stations falls or the transmission grid trips, as it has repeatedly, the system operator and the distribution companies must ration. Prioritising Band A customers protects the revenue, but it pushes outages onto Bands B to E, who are still subsidised. The result can be a two-tier grid where the subsidised majority receives even less power so that the paying minority can be served.
Finally, the order does not remove the subsidy. It reduces it. The 85 per cent of customers on lower bands are still paying below cost, and the overall shortfall will continue to rise with any further fall in the naira or rise in gas prices. A partial reform that lowers the bill by N1.14 trillion still leaves a large fiscal commitment in place.
What the regulator should do next
Three things would make this reform durable. First, publish feeder-level supply hours. NERC already collects operational data. Releasing it in a regular, machine-readable form would let customers and journalists check whether Band A feeders are really receiving 20 hours, and would make downgrades visible when they are not.
Second, close the metering gap on Band A feeders first. Customers paying the full cost of supply should not be on estimated bills. Prioritising meters for these customers is affordable because they are a minority, and it would make the service obligation enforceable.
Third, make sure the extra revenue reaches the rest of the chain. The purpose of the tariff increase is to improve liquidity for generators and gas suppliers. If distribution companies retain the gains without improving remittances to the market, the reform will raise prices without improving supply. The regulator should track remittance rates and tie any future tariff reviews to them.
Our assessment
Nigeria's Band A reset is more intelligent than an across-the-board increase and more honest than another year of open-ended subsidy. It accepts that the customers who receive good service should pay what that service costs, and it gives distribution companies a reason to improve feeders. But it moves risk from the budget to the regulator. If NERC cannot measure and enforce supply hours, the reform will be remembered as a price rise for a promise that was not kept. The real test will come in the dry-season months when gas and generation are tight, and in whether the commission is willing to downgrade feeders that fail.