FG Borrowed N1.7 Trillion in Three Years from CBN to Sustain Subsidy Payment for Electricity – World Bank

The World bank has disclosed that since 2017, Federal Government has borrowed about N1.3 trillion from the Central Bank of Nigeria (CBN) to sustain electricity subsidy payment in the form of covering tariff shortfalls.

According to THISDAY, the Bank also stated that about 80 per cent of subsidy the Federal Government provides in the electricity sector benefits mostly the country’s wealthy citizens with only two per cent of such getting to the poorest population.

The bank also stated that since 2017, the government has borrowed about N1.3 trillion from the Central Bank of Nigeria (CBN) to sustain the subsidy payment in the form of covering tariff shortfalls.

It disclosed this in a program appraisal document on a proposed credit worth $750 million which it intends to extend to Nigeria under the Power Sector Recovery Programme (PSRP) jointly developed to revamp the country’s power sector.

In the document, the bank explained that the country cannot continue to

fund electricity tariff shortfalls which is rising annually and would have to allow for a cost-reflective tariff in the sector.

The Bank stated: “The significant fiscal resources spent on funding tariff shortfalls disproportionately benefit the (relatively) rich Nigerians.”

It noted that the power sector’s revenue shortfalls have been on the rise and could reach N4.3 trillion by 2023.

“While access to grid electricity of the poorest 40 per cent, ranked by per capita household expenditures, is 37 per cent, 68 per cent of the richest 60 per cent reported access to the grid. Living in more affluent neighbourhoods, the top 60 per cent also experienced fewer outages, and spent almost twice as much on electricity as the bottom 40 per cent.

“As a result, the fiscal expenditure on tariff shortfalls largely benefits the rich. Eighty per cent of the fiscal expenditure on tariff shortfalls benefits the richest 40 per cent of the population, while only eight per cent benefits the bottom 40 per cent, and less than 2 per cent benefits the poorest 20 per cent,” said the Bank in the document which outlined how the proposed loan would be administered.

It further stated that, “the FGN cannot afford inaction. If the issues discussed are not addressed, the fiscal burden of the sector will continue to rise, and the sector will continue to seriously hinder economic growth.

“For 2020-2023 under an inaction scenario; annual tariff shortfalls will total N3,082 billion (US$7,937 million) with aggregate tariff shortfalls for 2017-2023 reaching over N4.3 trillion (US$12.0 billion). COVID-19, decline in oil prices and the economic downturn projected for Nigeria will likely further aggravate the precarious financial situation of the power sector, making the need for action even more urgent.”

To ensure that power generation companies (Gencos) and gas suppliers received sufficient payments to continue generating electricity, the bank explained that the government has borrowed from the CBN a total of N1.301 trillion since 2017.