The Federal Government has proposed a N3.6 trillion deduction from the Federation Account to finance electricity subsidies over 2026, 2027, and 2028, a move aimed at spreading the financial responsibility across federal, state, and local governments, The PUNCH reports.
The measure, outlined in the Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF-FSP) for 2026–2028, signals a strategic shift toward explicit, transparent, and shared subsidy funding. For 2026, the subsidy allocation is pegged at N1.2 trillion, with the same level projected for 2027 and 2028.
According to the document, the proposed approach ensures subsidy payments are tracked and funded directly from the Federation Account Allocation Committee (FAAC) pool before revenues are distributed to the three tiers of government.
Federal Government Perspective
Director-General of the Budget Office, Tanimu Yakubu, said President Bola Tinubu had directed that electricity subsidies be explicitly accounted for and fairly shared among all levels of government.
“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.”
He added that from 2026, the Federal Government would no longer bear the entire subsidy cost alone, especially where policy benefits are shared across federal, state, and local governments.
The plan invokes the existing electricity sector legal framework to ensure subsidy sharing is enforceable, transparent, and predictable, preventing arrears or hidden liabilities that could destabilise the market.
How the Subsidy Works
Currently, subsidies are channelled through the Nigerian Bulk Electricity Trading Plc (NBET), which purchases electricity from generation companies (GenCos) and sells it to distribution companies (DisCos) at regulated tariffs below production costs. The resulting gap is covered by government subsidies, which protect consumers while maintaining market stability.
By the end of 2025, total sector debt—including unpaid obligations to power companies—was projected at N6.5 trillion, up from around N4 trillion earlier in the year, driven by unfunded subsidy shortfalls and low payments to producers. The proposed FAAC deduction is intended to address these challenges, ensuring timely and explicit payments.
Expert Insights
Energy policy analyst Habu Sadeik explained that the N1.2 trillion deduction would be removed from gross FAAC revenue before distribution to states and local governments, similar to the funding structure of the Presidential Metering Initiative.
“This means every federating unit indirectly contributes to the subsidy,” Sadeik said. “It is a fundamental shift in responsibility, moving from a Federal Government-only obligation to a shared framework across the federation.”
Adetayo Adegbemle, Executive Director of PowerUp Nigeria, welcomed the plan, saying it aligns with federalism principles by involving all tiers of government in funding electricity subsidies. He noted that shared responsibility would incentivise states and local governments to audit electricity customer bases, reduce inefficiencies, and improve accountability.
Implications for States and Local Governments
Under the current FAAC formula, states receive 26.72% of the Main Pool, and local governments 20.60%. With projected FAAC revenue of N41.06 trillion for 2026, upfront deduction of N1.2 trillion will reduce the distributable amounts, requiring governors to potentially adjust allocations for sectors like infrastructure, education, and healthcare.
The Forum of State Commissioners of Power and Energy in Nigeria (FOCPEN) said it would carefully review the proposal before issuing an official stance. FOCPEN Chairman Prince Eka Williams emphasized confidence that the Federal Government would act in the best interests of Nigerians.
Ministry of Power Supports Proposal
The Ministry of Power also expressed support, describing the initiative as a positive step toward stabilising the power sector. Spokesperson Bolaji Tunji stated that while the DG of the Budget Office leads the implementation, the ministry agrees with its objectives of transparency, accountability, and shared fiscal responsibility.
