The Federal Government has proposed a N3.6 trillion deduction from the Federation Account to fund electricity subsidies over the 2026–2028 period, a move aimed at sharing the financial burden across federal, state, and local governments.
The proposal, outlined in the Medium-Term Expenditure Framework and Fiscal Strategy Paper for 2026–2028, is designed to address the rapidly mounting electricity subsidy debt, which has constrained liquidity in Nigeria’s power sector, while improving fiscal transparency by making subsidy obligations explicit and enforceable.
According to the MTEF document, the electricity subsidy for 2026 is projected at N1.2 trillion, with the same amount expected for 2027 and 2028. The deduction would be made directly from the Federation Account Allocation Committee (FAAC) pool before revenue distribution to subnational governments, ensuring all tiers of government contribute to the cost.
“The transfer to NBET (Electricity Subsidy) is estimated at N1.2 trillion in the 2026 budget proposal and projected to remain at N1.2 trillion each in 2027 and 2028,” the document states.
Budget Office Director-General Tanimu Yakubu said the measure reflects President Bola Tinubu’s directive that electricity subsidies be made explicit, tracked, and shared across federal, state, and local governments. He said the policy would end the longstanding practice of the federal government bearing the cost alone.
“If we want a stable power sector, we must pay for the choices we make,” Yakubu said. “When tariffs are held below cost, a gap is created. That gap is a subsidy. And a subsidy is a bill. In 2026, we will stop pretending that this bill can be left to the Federal Government alone, especially where the policy choice or the political benefit is shared across tiers of government.”
Currently, the federal government finances electricity subsidies through the Ministry of Finance to the Nigerian Bulk Electricity Trading Plc (NBET), which buys electricity from generation companies and sells to distribution companies at regulated tariffs below production cost. The gap is covered by government subsidies, which have strained federal finances. By the end of 2025, total outstanding power sector debt is projected at about N6.5 trillion, up from around N4 trillion earlier in the year.
Energy policy experts described the proposal as a significant shift in responsibility. Habu Sadeik said the N1.2 trillion deduction will reduce the federal government’s burden while promoting accountability and efficiency across all tiers of government. “What the government has done is to provide for a deduction at source from the gross FAAC revenue to NBET,” he said, noting that the approach mirrors funding structures used for the Presidential Metering Initiative.
Adetayo Adegbemle, executive director of PowerUp Nigeria, praised the proposal, saying it aligns with federalism by involving all tiers of government in the cost of electricity subsidies. He said the framework would encourage states to audit electricity connections and reduce inefficiencies.
The Ministry of Power, through media aide Bolaji Tunji, expressed support for the initiative, describing it as a step in the right direction for the sector.
Under the current FAAC revenue-sharing formula, states receive about 26.72% and local governments 20.60% of the Main Pool. The proposed upfront subsidy deduction will reduce the amounts available for subnational governments, potentially requiring governors to adjust allocations for sectors such as infrastructure, education, and healthcare.
The Forum of State Commissioners of Power and Energy in Nigeria said it would review the proposal thoroughly before issuing a formal position. FOCPEN Chairman Prince Eka Williams, also Cross River State’s commissioner for power, said the forum expects the government’s actions to be in the interest of the public.
“If that’s what the Federal Government has said, we have to look at it and digest it well,” Williams said. “But I’m sure what the government would do would be in the interest of Nigerians.”
The new framework is intended to make electricity subsidies predictable, transparent, and sustainably funded, marking a departure from previous budgets that left the federal government shouldering the bulk of the sector’s financial obligations.
