From Subsidy to Struggle: Nigeria’s New Energy Reality
May 29, 2023, will remain etched in the memory of many Nigerians for a long time to come. “Fuel subsidy is gone,” announced the new president during his inaugural speech. Almost overnight, the pump price of petrol surged — from ₦198 to ₦500, with some stations even charging up to ₦600. Barely a year later, on April 3, 2024, while many were still grappling with inflation triggered by the subsidy removal, the government announced a phased removal of electricity subsidies. This decision resulted in an immediate 230% hike in tariffs for Band A customers — from ₦68 per kWh to over ₦200 per kWh — and spurred a sharp rise in the cost of generators, petrol, and diesel, compounding the burden on households and businesses dependent on off-grid energy.
What Changed?
The government’s decision to remove fuel and electricity subsidies was driven by a need to reduce fiscal burdens exacerbated by global oil price volatility, inefficiencies in local oil production, and chronic underinvestment in power generation. The move was intended to free up public funds, reduce subsidy-related waste, and encourage private-sector investment. However, these policy shifts have had far-reaching consequences for the Nigerian economy and everyday life.
Economic Consequences
The rising cost of energy has had profound effects on multiple sectors of the economy, the most important being households and businesses.
- Households: With the December 2024 inflation rate surpassing 34%, low-income and rural households are facing escalating energy poverty. As energy becomes less affordable, many families have reverted to traditional biomass such as firewood for cooking, which compromises their health due to indoor air pollution and signifies a step backwards in living standards.
- Businesses: The energy cost surge is squeezing profit margins across industries. For instance, companies in the manufacturing and cement sectors have reported energy cost increases of up to 71% year-on-year. Many businesses are now forced to generate their power using expensive diesel generators, leading to higher operational costs, reduced productivity, and diminished competitiveness. Small and medium-sized enterprises (SMEs) are particularly vulnerable as they struggle to absorb these rising expenses, resulting in lower output, potential job cuts, and an overall decline in economic activity. The increased expenditure on energy has also driven up the cost of goods and services, contributing to a broader inflationary cycle that further erodes consumer purchasing power.
Social Implications
Beyond the immediate economic impact, the steep rise in energy costs has deepened existing social inequities and reshaped daily life in Nigeria:
- Energy Access Inequality: The subsidy removals have widened the divide between urban and rural areas. Urban residents — often benefiting from relatively more stable grid connections — are better able to cope with the increases. In contrast, rural communities, which already face chronic energy shortages and rely on expensive off-grid alternatives, are disproportionately affected. This disparity exacerbates regional inequalities and hampers rural development.
- Impact on Daily Life: For many Nigerians, the burden of higher energy costs is felt in every aspect of daily living. Households are compelled to cut back on other essential expenses, leading to deteriorating standards of living. Additionally, the increased reliance on biomass and other inefficient energy sources has significant public health implications, including respiratory issues and other chronic illnesses. Social unrest is a growing concern as communities express frustration over reduced access to affordable energy, which in turn affects education, healthcare, and overall quality of life.
Systemic and Structural Challenges
Underlying these economic and social impacts are systemic issues in Nigeria’s energy sector. Chronic problems with metering, frequent vandalism, and outdated infrastructure exacerbate the situation. Regulatory gaps further complicate efforts to reform the sector, leaving many Nigerians to shoulder the brunt of inefficiencies and high costs without adequate support.
Call to Action
The removal of fuel subsidies in 2023 and the subsequent increases in electricity tariffs have not only triggered inflation and energy poverty but also deepened socioeconomic disparities. The government must act decisively by investing in robust safety nets, such as transportation subsidies and improved rural electrification, while accelerating investments in renewable energy. In the long term, reallocated subsidy savings should be transparently directed towards modernizing power and transportation infrastructure, ultimately rebuilding public trust and ensuring equitable energy access.
Conclusion
The rapid escalation of energy costs in Nigeria has laid bare the vulnerabilities in our economic and social systems. If you have been impacted in any way, please feel free to share your perspectives and personal experiences with these changes so we can foster a broader dialogue on how we can collectively push for sustainable and inclusive energy solutions.
