Nigeria’s electricity sector is embroiled in its most acute crisis since privatisation in 2013, as the Electricity Act 2023 decentralises tariff‑setting powers to subnational regulators. In mid‑July 2025, Enugu State exercised this new authority, cutting its Band A tariff from ₦209/kWh to ₦160/kWh.
Within hours, power generation companies (GenCos) and distribution companies (DisCos) denounced the move as “dangerous” and “unsustainable,” warning of blackouts and investor flight.
As other states—including Plateau, Ondo and, potentially, Lagos—eye similar cuts, the sector teeters on the brink of fiscal collapse, with GenCos owed over ₦5.2 trillion and the 2025 federal subsidy budget a paltry ₦900 billion.
This in‑depth, investigative report examines the genesis and implications of the tariff wars, juxtaposes Nigeria’s current predicament against international precedents, and evaluates the legal, financial and human costs of rushing towards decentralised electricity markets.
The Electricity Act 2023: Shifting the Regulatory Balance
The Electricity Act 2023 represents a watershed in Nigeria’s power sector legal framework. Signed in November 2023, it repealed extensive sections of the 1992 Electric Power Sector Reform Act, explicitly empowering states to licence generation, transmission and distribution activities within their territories.
By recognising “state‑established electricity markets” as legitimate alongside the national grid, it sought to stimulate competition, attract investment and tailor tariffs to local socio‑economic realities.
Prior to the Act, the Nigerian Electricity Regulatory Commission (NERC) held exclusive tariff‑setting authority under the Multi‑Year Tariff Order (MYTO).
While MYTO aimed for cost‑reflective pricing, persistent federal subsidy shortfalls and opaque cost calculations left tariffs frozen below actual generation costs, accumulating arrears and deterring private capital.
By devolving regulatory control, the 2023 legislation promised to inject flexibility. States could now craft tariff methodologies reflecting local generation costs, loss profiles and customer mix.
In theory, this would foster “cost‑reflective, transparent and investor‑friendly markets” tailored to regional dynamics. Yet the law also imposes on states the full burden of reconciling subsidies, debts and legacy liabilities—responsibilities hitherto shouldered, albeit imperfectly, by the federal government.
Enugu State’s Bold Tariff Slasher: N209 to N160/kWh
On 13 July 2025, the Enugu Electricity Regulatory Commission (EERC) issued Order No. EERC/2025/003, reducing its Band A tariff from ₦209 to ₦160 per kilowatt‑hour, effective 1 August 2025.
Band A covers small businesses and lower‑income residential customers—segments highly sensitive to electricity costs.
Chairman Chijioke Okonkwo justified the slash as a “data‑driven intervention based on cost‑reflective pricing,” leveraging an ongoing federal generation subsidy estimated at ₦45/kWh.
Okonkwo explained that MainPower, Enugu’s new DisCo subsidiary, provided six months of operational data—customer volumes, loss factors, capital expenditure plans and other inputs—which the EERC modelled to arrive at an average cost of delivery of ₦94/kWh post‑subsidy.
Excluding the subsidy, cost would soar to ₦112/kWh.
Okonkwo further stressed that the EERC’s Tariff Methodology Regulation 2024 mandates transparent cost inputs, inflation adjustments and projected losses, ideally insulating the state market from ad‑hoc federal subsidy lapses.
Yet he cautioned that the current affordability hinges entirely on continued federal subsidy, warning that its removal would push tariffs well above ₦160/kWh.
GenCos and DisCos Push Back: “This Will Cripple the Sector”
Within hours of Enugu’s announcement, the Association of Power Generation Companies (APGC) issued a scathing rejoinder. CEO Joy Ogaji denounced the assumption of a federal subsidy as “deeply flawed,” stating:
“There is no FGN policy on subsidies. It is debt accumulation. This tariff order leaves a 60 percent gap—the state assumes the FG will pay ₦45/kWh, though no cash‑backed subsidies exist.”
GenCos collectively issue invoices averaging ₦250 billion monthly, yet the 2025 budget allocates only ₦900 billion for electricity support—enough to settle roughly 3.6 months of generation invoices, leaving ₦1.1 trillion unaddressed.
Legacy debts of ₦2 trillion from 2015–2024, plus a further ₦1.2 trillion accrued in H1 2025, push total arrears to ₦5.2 trillion.
DisCos, many operating on razor‑thin margins post‑privatisation, joined the fray. Anonymously, a senior Disco official warned:
“Tariffs below production cost disincentivise investors. Who will pay the shortfall? States must be ready to underwrite subsidies—else cost‑recovery fails and supply collapses.”
The official also raised constitutional concerns, arguing that regional orders contrary to national policy risk judicial nullification.
Rapid State‑by‑State Adoption: A Domino Effect
Enugu’s aggressive stance sparked a rush of tariff review announcements:
Plateau State: Chairman Bagudu Hirse vowed to “make life better” by cutting tariffs, following Governor Mutfwang’s inauguration of the state Electricity Commission on 15 July 2025. Public hearings are slated for late July before a revised order takes effect.
Ondo State: Commissioner Johnson Alabi confirmed that power purchase agreements are near finalisation. He hinted tariffs will be “determined by the state directly purchasing from the Transmission Company,” mirroring Enugu’s model.
Lagos State: Commissioner Biodun Ogunleye acknowledged Enugu’s move but stressed Lagos’s unique “50 percent share of national consumption,” security imperatives and fiscal complexities. He promised an announcement “by next week” after rigorous review.
Ekiti State: Prof. Bolaji Aluko opted for caution, retaining the federal MYTO framework “until every state exits the MYTO to ensure sustainable provision” and longer transition.
With at least eleven states empowered under the Act—and four more (Lagos, Ogun, Niger, Plateau) transitioning by September—Nigeria edges towards a patchwork of state‑specific tariffs and regulatory regimes.
GenCos’ Dire Financial Straits: Debt, Subsidies and Budget Shortfalls
The financial metrics paint a bleak picture. Total GenCo arrears reached ₦5.2 trillion as of mid‑July 2025, comprising:
- ₦2 trillion in legacy debts (2015–2024)
- ₦2 trillion in federal subsidy shortfalls from 2024
- ₦1.2 trillion accrued in H1 2025 alone
Monthly generation invoices average ₦250 billion, yet the federal appropriation of ₦900 billion covers only 3.6 months, leaving an annual shortfall of ₦1.2 trillion.
Despite a 35 percent subsidy cut in April 2025 that generated an extra ₦700 billion of revenue, cumulative debts fell only from ₦6.2 trillion to ₦5.2 trillion—a marginal improvement given the sector’s scale.
Analysts warn that without a comprehensive debt‑resolution plan—encompassing cash payments, debt instruments and promissory notes—the cycle of arrears will perpetuate.
The World Bank’s US\$500 million loan in 2021 aimed to bolster DisCo performance, yet grid inefficiencies, gas shortages and vandalism persist, limiting actual generation to one‑third of the installed 12,500 MW capacity.
International Comparisons: Lessons from South Africa and Beyond
Nigeria’s tariff experiment finds precedent in South Africa’s ESKOM‑municipality model, where bulk power is sold at cost to local authorities, which then set end‑user tariffs.
While this decentralisation promotes local autonomy, it has also saddled municipalities with massive debt—over ZAR 50 billion in unpaid power bills—forcing bailouts and bail‑ins.
Similarly, in India’s power reforms, state regulators retain tariff‑setting powers, but prudent fiscal transfers and ring‑fenced subsidy funds are mandated.
Where fiscal discipline faltered, DisCos defaulted, leading to load‑shedding and loss of investor confidence.
Nigeria’s federal and state governments must heed these lessons: tariff flexibility demands commensurate fiscal support mechanisms and strict governance.
Legal and Constitutional Flashpoints
The Electricity Act 2023’s decentralisation drive has ignited constitutional debate. GenCos warn that conflicting sub‑national tariffs could breach the Exclusive Legislative List of the 1999 Constitution, which vests federal government with overarching energy policy authority.
A senior Disco official argued:
“Any regional law at variance with the Constitution is null and void. States cannot foist unfinanced subsidies onto the federal purse.”
Conversely, state regulators point to Section 78 of the 1999 Constitution (as amended by the Constitutional Amendment Act 2023) that explicitly empowers states in “electric power retail distribution.”
The ensuing legal test cases—likely in the Federal High Court—will determine whether tariff orders like Enugu’s withstand constitutional scrutiny or are struck down as ultra vires.
Consumers vs. Investors: The Double‑Edged Sword of Lower Tariffs
For small businesses and lower‑income households, a 23 percent tariff cut is a welcome reprieve, potentially reducing monthly electricity bills by tens of thousands of naira.
In an economy beset by 25 percent inflation and rising energy costs, any relief galvanises public support. Yet investors scrutinise cost‑recovery metrics above all.
DisCos and GenCos demand tariffs that cover generation, transmission and distribution costs plus a regulated return on equity.
Tariffs set below production cost deter fresh capital, stall maintenance and risk rationing supply.
As one Disco executive lamented:
“No businessman invests where costs can’t be recouped. Tariffs below cost kill confidence and catalyse blackouts.”
Fiscal Implications for State Governments
Unlike the federal government’s broader revenue base, most Nigerian states have limited fiscal space and narrow tax bases. Underwriting a ₦40 billion annual subsidy shortfall (for a medium‑sized state market) would force cuts in capital spending, hikes in local taxes or fresh borrowing.
Mozambique and Ghana have confronted similar dilemmas: states that pursued deep tariff cuts without fiscal buffers found their budgets buckling under subsidy bills, leading to credit downgrades.
Plateau’s newly inaugurated commission must rapidly secure funding lines—either through inter‑governmental transfers, municipal bonds or public‑private partnerships—to honour its tariff promises.
Failure to do so will expose it to legal claims from power firms and potential supply disruptions.
The Road Ahead: Reconciling Autonomy and Sustainability
Nigeria’s power sector now faces a fork in the road. To realise the promise of decentralisation without plunging into deeper insolvency, policymakers must:
Establish a National Debt‑Resolution Framework: A combination of cash repayments, long‑dated bonds and debt‑equity swaps to retire the ₦5.2 trillion arrears.
Create State‑Level Subsidy Funds: Ring‑fenced, transparent funds—financed through dedicated levies or federal grants—to smooth out tariff differentials without destabilising state budgets.
Harmonise Regulatory Oversight: A joint federal‑state oversight committee to align tariff methodologies, share best practices and adjudicate disputes, thereby avoiding legal fragmentation.
Attract Private Capital: Introduce guaranteed minimum revenue mechanisms and performance‑based incentives to entice investors back into generation and distribution.
Enhance Data Transparency: Mandatory, real‑time disclosure of cost inputs, loss metrics and subsidy flows to build trust among stakeholders and the public.
Such a multi‑pronged approach could transform the current tariff wars into a template for sustainable, investor‑friendly state markets—if, and only if, fiscal realism underpins regulatory ambition.
Conclusion
The Electricity Act 2023’s devolution of tariff‑setting powers represents a bold experiment in Nigeria’s ongoing quest for reliable, affordable power.
Yet Enugu’s headline‑grabbing cut from ₦209 to ₦160/kWh has exposed the perilous fault lines between regulatory autonomy, fiscal capacity and private‑sector viability.
With GenCo debts topping ₦5.2 trillion, only ₦900 billion in annual subsidies and a 35 percent national subsidy cut in April 2025, the sector teeters on the edge of a collapse far deeper than intermittent blackouts.
Success hinges on forging a coherent debt‑resolution strategy, binding inter‑governmental subsidy mechanisms and robust legal frameworks that respect both constitutional mandates and commercial imperatives.
Otherwise, Nigeria risks swapping one form of crisis—federal subsidy shortfalls—for a fragmented, financially unsound patchwork of state markets, leaving millions in the dark and investors on the sidelines.
