Written By: Dr Oluwaseun Adeoye Oyebamiji
The federal government says the electricity subsidy will end in 2027. We posit that, unless competition comes with it, Nigerians risk paying more for the same unreliable supply.
In July, Power Minister Joseph Tegbe said the subsidy would be phased out from 2027 without reducing access or service quality, and that no tariff increase was planned. On paper, this is good news: removing the subsidy would end the long-standing State-backed monopoly on generation and distribution of electricity. Besides, the fiscal case is also strong; NERC data put the subsidy at about ₦650 billion in 2023, ₦1.94 trillion in 2024 and ₦1.92 trillion in 2025, though another report puts the 2023 figure nearer ₦610 billion.
Much of that bill went unpaid. The government paid only ₦371.34 million of the ₦1.94 trillion owed for 2024, leaving generators and gas suppliers to carry the gap. In 2025 the president approved a ₦4 trillion bond programme to clear verified debts, but three months after the first ₦501 billion issue in January 2026, generators said they had received nothing. The subsidy also benefits only customers already on the grid, while many of the poorest have no connection, as the World Bank’s Resilience through Reforms report showed. The arrangement has therefore become difficult to defend on both fiscal and distributional grounds.
However, removing the subsidy is half a reform; the other half is competition. Without competition, the cost may simply move from the Treasury to households and firms, with the same distribution companies, and the same losses, still in charge. Those companies recorded aggregate technical, commercial and collection losses of 37.03% in 2025, against the 20.54% the tariff allows. In June 2026, about 4.8 million of 12.6 million active customers still had no meter. In February and March 2026, NERC had to order compensation for Band A feeders that delivered under 18 of the promised 20 hours a day. A customer who receives an estimated bill for power she did not get will, definitely, not call a higher tariff a reform.
Another precedent, the nearest if we may, is petrol. Petrol prices rose sharply after the 2023 subsidy removal. Since 2024 the Dangote refinery has competed with importers, and it cut its price by ₦200 a litre between late May and early July 2026. Yet the average pump price was still 55.31% higher year on year in May, and the refinery is contesting continued imports in court. Competition helped, albeit slowly. In the electricity market, there exists no rival yet: most Nigerians buy from one distribution company with a regional franchise.
Of course, there is the legal route; in fact, the Electricity Act of 2023 lets states regulate their own markets. NERC completed transfers to Enugu, Ekiti, Ondo and Imo by January 2025 and says 15 states now hold full authority. A transfer is not competition, and states differ in capacity. But it does something no national reform can: it hands power to governments that answer to their own voters, and lets them compete.
Friedrich Hayek described competition as a discovery procedure, a way of finding facts that would otherwise stay unknown. One national regulator must guess the right tariff, the right licence terms and the right grid rules for every region at once, and when it guesses wrong, everyone pays. Up to thirty-six state markets, each free to license generators, mini-grids and distributors, would run thirty-six experiments. Success would be copied. Failure would stay local and visible, instead of being buried in a national subsidy bill.
Federalism also supplies what no regulator can: the right to leave. A state that overprices power, or fixes tariffs below cost, will watch investors and businesses drift next door. This is the discipline Leon Louw and Frances Kendall built into their proposal for some 300 cantons in South Africa, with free movement of people and wealth so that badly run units lost residents and investment. Louw, long-time head of the Free Market Foundation, went on to apply the same logic to power, arguing in 2008 that Eskom needed not better management but free competition.
South Africa shows both halves of the lesson. At the centre, Eskom is still the country’s sole bulk electricity provider. Yet the cities did not wait for it. Cape Town spent years urging national government to let it buy power independently. Its mayor then said the city would take matters into its own hands, tendering for independent producers and running a wheeling pilot that let third parties sell power over the city’s grid. Johannesburg and Nelson Mandela Bay moved the same way. Pretoria is now opening the market itself: the Electricity Regulation Amendment Act of 2024 lays the legal foundation for competitive trading. But the centre is holding on. Eskom’s revised unbundling strategy keeps the grid-owning transmission company as an Eskom subsidiary, and Louw and Izwe Lami argue in Business Day that what matters most for competition is freedom of entry.
The centre’s answer to local failure points the wrong way. Municipalities owed Eskom more than R110 billion by March 2026, and the government’s response is Distribution Agency Agreements, under which Eskom takes over distribution from defaulting councils. That is the opposite of the cantonal design. Instead of letting failing local suppliers lose customers to better ones, it hands them back to the national monopoly. Nigeria is at the same fork. It can keep one national franchise model and one national subsidy bill, or let its states compete and learn from one another.
Some states will fix tariffs below cost to win votes, recreating the subsidy at another level of government. But the answer is not a bigger regulator; it is more competition. A state that holds prices below cost will watch generators, mini-grid developers and businesses move next door. A price set by a regulator hides the cost of supply, while a price agreed between a willing buyer and a willing seller reveals it.
The poor are better served this way than by the present arrangement. The World Bank found that 80% of the spending on tariff shortfalls went to the richest 40% of the population. An entrepreneur free to sell power to the unconnected will reach people the franchise holder has not. If government still wants to help poor households, a targeted transfer, which it says it is developing, should put cash in their hands rather than distort the price everyone pays. What the market needs from government is clear: enforce contracts, honour payment obligations and guarantee open access to the grid. Regulation should protect these conditions of competition, not preserve exclusive franchises at consumers’ expense.
Reform should therefore do four things. Let independent mini-grids and embedded generators operate with minimal licensing, with tariffs set by contract rather than by regulator. Open the wires, a natural monopoly, to other suppliers so a business park or housing estate can buy elsewhere. Finish metering and let customers buy approved meters. Settle generator debts on schedule so that investors trust contracts.
Nigeria has spent over a decade trying to make a privatised but uncompetitive power sector work, and the subsidy has hidden the cost. Whether power improves once it ends depends on whether the government also removes the barriers that protect the incumbents, and then lets consumers and suppliers decide the rest.
Competition between governments is the oldest check on any one of them. Nigeria’s states, and South Africa’s cities, should be free to use it.
Dr Oluwaseun Adeoye Oyebamiji is a development economist, agricultural policy researcher, and a fellow of the George Ayittey Society whose work examines food security, poverty, markets, agricultural policy and economic development, particularly in Africa. He is an Associate of the Free Market Foundation.