Real reason Senate rejected removal of subsidy on electricity

Adebayo Obajemu

Two weeks ago the Senate unanimously rejected planned removal of subsidy on electricity. More reasons have come to light on why the upper chambers of the National Assembly rejected it.
Competent sources told EnergyDay that majority of the members were alarmed at the way Nigerians went into frenzy over purchase of expensive cars for the legislators amidst poverty and hardships in the land. The source hinted that members were afraid of consequences of the removal such as the likelihood of violent social unrest worse than #Endsars given the anger and suffering in the land.
Speaking on Senate’s position, professor Adeagbo Moritiwon a political scientist told EnergyDay that ” what the Senate did was enlightened self preservation because such removal at this time will surely pushes Nigerians into social dislocation and chaos.”

Recall that Senate had two weeks ago totally rejected plan by FG to raise electricity tariff through subsidy removal
The senators averred that there was already a high level of poverty and hardships in the polity and the current economy is harsh on Nigerians, making living very expensive; as prices of basic commodities have risen astronomically.

It also came to the conclusion to conduct a proper investigation into the reasons for call for the removal of electricity subsidy in the first place.

The resolution was a follow up l to a motion sponsored by Aminu Abass (PDP, Adamawa Central) during the plenary.

The Senate President, Godswill Akpabio, made the resolution public after a majority of the senators supported it through voice votes.

The plenary was a response to the plan by federal government to stop the subsidy, the announcement was through the Minister of Power, Bayo Adelabu, at a press briefing .

The minister stated that Nigeria cannot continue to subsidise electricity because of the huge indebtedness in the power sector to the tune of N3 trillion.

But the lawmakers in their separate contributions rejected the plan on the grounds that it will increase the tariff.

Mr Abass, while presenting the motion, explained that the removal of the electricity subsidy will increase the electricity tariff and make payment of electricity bills unbearable for Nigerians.

The senator said there was already a high level of poverty in the country and the current economy is harsh on Nigerians, making living very expensive.

“In a country where greater number of the population live below the poverty level, with stagnant wages, rising inflation and depreciating currency, the prospect of higher electricity bill is unattainable” he said.

Mr Abass therefore prayed the Senate to advise the federal government to stand down the planned remival of subsidy to forestall increment in electricity tariff.

He also urged his colleagues to mandate the Senate Committee on Power to investigate the over N2 trillion subsidy requirements as stated by the Minister of Power.

The senator also called for a probe of the failed agreement to provide adequate prepaid meters to Nigerians.

Many of the lawmakers supported the rejection of the subsidy removal on electricity and the attendant increase in tariff.

The senator representing Sokoto South, Aminu Tambuwal, argued that it would be unfair for the government to increase electricity tariffs when Nigerians are going through hardships.

“The populace are facing untold hardships and the situation in the country is anything but normal and removal of any subsidy not to talk to electricity subsidy would be more than adding petrol to fire.

“When I heard the minister of power talking about removal, I don’t know why but I believe that it is insensitive,” Mr Tambuwal said.

Abba Moro, the senator for Benue South, also rejected the increase in the electricity tariff.

Mr Moro, a member of the Peoples Democratic Party (PDP), said the challenges of power supply in the country are very crucial and the negative aspects have forced many companies to fold up.

“In the 9th senate, an idea to increase the electricity tariff was raised and it was instantly killed because it was not in the interest of Nigerians

“Our concern at this moment should be how to generate electricity. Many organisations and companies are relocating from Nigeria simply because they do not have the energy to drive their production.

“This issue of subsidy removal has become a serious matter that we must be careful on how to handle it,” he said.

The senator representing Abia North, Orji Kalu, also supported the motion.

Mr Kalu, a former governor of Abi State and member of the All Progressives Congress (APC), urged the federal government to focus on the distribution and circulation of electricity supply and not increment.

“Why should people be paying for what they did not use? Our focus should be on transmission and distribution”, he said.
Other lawmakers also voiced their rejection.

Recall that three weeks ago, the International Monetary Fund (IMF) asked the federal government to completely phase out petrol and electricity subsidies in the country.

The IMF made the recommendation while advising Nigeria on pathways to restoring macroeconomic stability in its ‘Post Financing Assessment (PFA)’ report.

Nigeria’s liquidity-challenged power sector is currently not allowed to charge a cost-reflective tariff due to a subsidy paid on electricity by the government.

The country’s government had spent N204.59 billion on electricity subsidy in the third quarter (Q3) of 2023, and plans to expend an additional N1.6 trillion in 2024 to enable citizens access power at a low cost.

On the other hand, the petrol subsidy removal, which came into effect on May 29, 2023, has worsened the living conditions of the populace, as the disposable income of Nigerians continues on a downward spiral due to inflation.

Although there are debates on the full implementation of petrol subsidy, with the World Bank hinting that the federal government has partially reintroduced under-recovery, the cost of living in Nigeria has remained up.

Speaking on recent remedial efforts in its report, the IMF said the government has released cereals from the grain reserve, provided subsidised fertilizer to farmers, and capped retail fuel and electricity prices — “thus partially reversing the fuel subsidy removal”.

The lender said the government also implemented a civil service wage award, and suspended the value-added tax (VAT) on diesel to ease the impact of the rapidly rising inflation on living conditions.

The institution, however, called for a total removal of petrol and electricity subsidies, saying they are expensive and often do not reach the most vulnerable groups.

‘FUEL, ELECTRICITY SUBSIDIES ARE COSTLY’

“The new administration has made a strong start, tackling deep-rooted structural issues in challenging circumstances,” the IMF said.

“Immediately, it adopted two policy reforms that its predecessors had shied away from: fuel subsidy removal and the unification of the official exchange rates. Since then, the new CBN team has made price stability its core mandate and demonstrated this resolve by dropping its previous role in development finance.

“On the fiscal side, the authorities are developing an ambitious domestic revenue mobilization agenda. Like many other countries, Nigeria faces a difficult external environment and wide-ranging domestic challenges.

“External financing (market and official) is scarce, and global food prices have surged, reflecting the repercussions of conflict and geo-economic fragmentation. Per-capita growth in Nigeria has stalled, poverty, and food insecurity are high, exacerbating the cost-of-living crisis.

“Low reserves and very limited fiscal space constrain the authorities’ option space. Against this backdrop, the authorities’ focus on restoring macroeconomic stability and creating conditions for sustained, high and inclusive growth is appropriate.

“The CBN has set out on a welcome path of monetary tightening. The Governor has committed to making price stability the core objective of monetary policy, and the CBN has taken actions to mop up excess liquidity. Continuing to raise the monetary policy rate until it is positive in real terms would be an important signal of the direction of monetary policy.

“The government’s focus on revenue mobilization and digitalization would improve public service delivery and safeguard fiscal sustainability. The envisaged reduction in the overall deficit in 2024 would help contain debt vulnerabilities and eliminate the need for CBN financing.”

The institution said temporary and targeted support to the most vulnerable in the form of social transfers is needed, given the ongoing cost-of-living crisis.

The IMF noted that fuel and electricity subsidies are costly, do not reach those that most need government support “and should be phased out completely”.