BY GODWIN OBI
The Federal Government has proposed a N3.6 trillion deduction from the Federation Account to fund electricity subsidies between 2026 and 2028, a move aimed at sharing the financial burden of power sector support among the federal, state and local governments.
The proposal is contained in the Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF-FSP) for 2026–2028 and represents a major shift in the funding structure of electricity subsidies, which have traditionally been borne solely by the Federal Government.
Under the plan, N1.2 trillion will be deducted annually from the Federation Account in 2026, 2027 and 2028 and transferred to the Nigerian Bulk Electricity Trading Plc (NBET) to cover electricity subsidy obligations.
According to the MTEF document, the deduction is listed under “Other FAAC Deductions” from revenues accruing to the Federation Account, signalling the government’s intention to make subsidy payments explicit, transparent and predictable.
The move is designed to address the growing electricity subsidy debt, which has constrained liquidity in the Nigerian Electricity Supply Industry (NESI) and contributed to mounting unpaid obligations to power generation and other sector participants.
The Budget Office of the Federation has previously stated that the Federal Government would no longer shoulder electricity subsidy costs alone. Its Director-General, Tanimu Yakubu, said President Bola Tinubu directed that electricity subsidies be made explicit, properly tracked and fairly shared across all tiers of government.
Yakubu noted that holding electricity tariffs below cost creates a funding gap that must be recognised and paid for, warning that unaccounted subsidies often return as arrears, liquidity crises or hidden liabilities within the power market.
Currently, electricity subsidies are funded through federal budgetary allocations routed to NBET, which purchases power from generation companies and sells to distribution companies at regulated tariffs below cost. The resulting gap is covered by government support.
However, sector debt has continued to rise due to underfunded subsidies. By the end of 2025, outstanding obligations in the power sector are projected to reach about N6.5 trillion, up from roughly N4 trillion earlier in the year.
Energy policy expert, Habu Sadeik, explained that the proposed N1.2 trillion annual subsidy will be deducted directly from gross FAAC revenue before distribution to the three tiers of government.
He said the arrangement makes electricity subsidy a first-line charge, similar to funding mechanisms used for other national interventions, noting that any deduction from the FAAC pool automatically reduces what states and local governments receive.
According to him, the approach represents a fundamental shift from previous years when electricity subsidies were embedded in federal budgets and inadequately funded.
“The key difference is that the burden is now shared by the entire federation — the Federal Government, states and local governments,” Sadeik said.
Also reacting, the Executive Director of PowerUp Nigeria, Adetayo Adegbemle, described the proposal as consistent with the principles of federalism, adding that shared responsibility would improve accountability across the power sector.
While reiterating his view that electricity subsidies should ideally be phased out, Adegbemle said the new framework would significantly reduce pressure on federal finances and compel sub-national governments to pay closer attention to electricity consumption, customer audits and grid connections.
The Minister of Power, Adebayo Adelabu, through his media aide, Bolaji Tunji, said the ministry supports the proposed funding framework, describing it as a step in the right direction for the sector.
He said although the announcement was made by the Budget Office, the Ministry of Power aligns with the objectives of the proposal.
The deduction is expected to have significant implications for states and local governments, as it will reduce the amount available for distribution from the Federation Account, potentially forcing sub-national governments to reassess spending priorities.
Meanwhile, the Forum of State Commissioners of Power and Energy in Nigeria said it would study the proposal carefully before taking a position. Its chairman, Prince Eka Williams, said the forum would rely on expert analysis to fully understand the implications of the policy.
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