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The Federal Government has proposed a N3.6 trillion deduction from the Federation Account over three years to fund electricity subsidies, beginning in 2026, a move aimed at distributing the sector’s growing financial burden across federal, state, and local governments.
The proposal, outlined in the Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF-FSP) for 2026–2028, marks a strategic shift toward fiscal transparency and shared responsibility for the electricity sector, which has long been constrained by rising subsidy debts.
Under the plan, N1.2 trillion will be deducted annually from the Federation Account Allocation Committee (FAAC) pool before revenue is shared with sub-national governments. This upfront deduction is designed to make payments explicit and enforceable, preventing the accumulation of hidden liabilities and arrears that have historically plagued the Nigerian Electricity Supply Industry (NESI). The funds will be directed to the Nigerian Bulk Electricity Trading Plc (NBET), which purchases electricity from generation companies (GenCos) and supplies it to distribution companies (DisCos) at regulated tariffs, often below the cost of production.
Budget Office Director-General Tanimu Yakubu explained that the President, Bola Tinubu, had directed that electricity subsidy costs be made transparent, tracked, and fairly shared across all tiers of government. “If we want a stable power sector, we must pay for the choices we make. When tariffs are held below cost, a gap is created. That gap is a subsidy. And a subsidy is a bill,” Yakubu said, adding that the Federal Government would no longer bear the costs alone.
Energy policy expert Habu Sadeik noted that the deduction represents a fundamental departure from previous arrangements where the federal government financed subsidies solely. By making the N1.2 trillion a first-line deduction from gross FAAC revenues, states and local governments will contribute indirectly, incentivizing efficiency and accountability in electricity provision. Sadeik highlighted that the arrangement is similar to the Presidential Metering Initiative, under which about N800 billion was carved out from FAAC to fund nationwide metering and reduce commercial losses in the sector.
Read also: FG Allocates $600m Annually For Electricity Subsidy
The MTEF-FSP notes that the electricity subsidy is projected to remain at N1.2 trillion for 2027 and 2028, signaling the government’s commitment to stabilizing the sector while preventing hidden liabilities from escalating into a fiscal crisis. The planned deduction is also expected to relieve federal finances, which are currently strained by a projected sector debt of N6.5 trillion by the end of 2025, up from N4 trillion earlier in the year due to unpaid obligations and low payments to power producers.
Advocates of the move argue that it reflects the principles of federalism. Adetayo Adegbemle, Executive Director of PowerUp Nigeria, said the arrangement allows all federating units to actively participate in governance and share responsibility for electricity subsidies. “Under this arrangement, the Federal Government, the states, and the local governments will all contribute to the payment of electricity subsidy,” he explained, adding that shared responsibility would compel governments at all levels to audit their customer bases and monitor grid connections, reducing inefficiencies and revenue leakages.
The framework, however, primarily targets states that have yet to establish their own electricity markets under the amended Electricity Act; states with functional local electricity markets may be exempt. While some experts continue to advocate for the eventual removal of subsidies, they acknowledge that this approach will significantly reduce the financial burden on the Federal Government and improve transparency in the sector.
Minister of Power Adebayo Adelabu, through his media aide Bolaji Tunji, expressed support for the proposal, emphasizing that the ministry aligns with the Budget Office’s objectives. “This announcement was made by the Director-General of the Budget Office… However, we agree with him on this,” Tunji said.
If implemented, the deduction will mark a major reform in how Nigeria funds electricity subsidies, making them predictable, transparent, and shared across all tiers of government, while reducing the long-standing fiscal strain on the federal budget and strengthening accountability in NESI. The move could also serve as a blueprint for managing other large, sectoral subsidies in a manner that balances fiscal prudence with social protection.
