In a significant policy shift, the Federal Government is considering a N3.6 trillion deduction from the Federation Account over the period spanning 2026 to 2028. According to sources at The PUNCH, this measure is intended to finance electricity subsidies and distribute the associated financial responsibility across the federal, state, and local government levels.
This proposed deduction represents a determined effort by the Federal Government to tackle the burgeoning electricity subsidy burden, which has significantly impacted liquidity within the power sector. The move also seeks to enhance fiscal transparency by clearly defining subsidy obligations and improving their financial tracking.
The proposal for this deduction is outlined in the Medium-Term Expenditure Framework and Fiscal Strategy Paper for the years 2026 through 2028. An analysis of this document reveals a strategic pivot toward distributing the financial load of the power sector across all levels of government, addressing growing concerns regarding unsustainable debt and systemic operational challenges.
Table 6.2 of the MTEF document, which details “Other FAAC Deductions” under the Federation Account Revenue—Main Pool, VAT, and Stamp Duty—specifies the electricity subsidy for 2026 at N1.2 trillion.
Projections indicate that this level of funding will be maintained through 2027 and 2028, underscoring the government’s dedication to stabilizing the sector while preventing the accumulation of hidden financial liabilities that could escalate into a broader fiscal crisis.
The document states, “The allocation to NBET (Electricity Subsidy) is estimated at N1.2 trillion in the 2026 budget proposal and is projected to remain constant at N1.2 trillion for both 2027 and 2028.”
This proposed approach aligns with prior statements from the Budget Office of the Federation, which signaled intentions to discontinue the practice of the Federal Government exclusively shouldering electricity subsidy costs.
During a training workshop for ministries, departments, and agencies on the 2026 post-budget preparation process, utilizing the Government Integrated Financial Management Information System Budget Preparation Sub-System, the Director-General of the Budget Office, Tanimu Yakubu, conveyed President Bola Tinubu’s directive to explicitly account for, track, and equitably share electricity subsidy costs across all levels of government.
“If we aim for a stable power sector, we must bear the costs of our decisions,” he stated. “When tariffs are set below cost, a deficit is created. That deficit constitutes a subsidy, which is essentially an outstanding bill.”
He further clarified that, beginning in 2026, the Federal Government will no longer consider electricity subsidies an unlimited obligation borne solely by the central government, particularly when policy decisions and associated political advantages are distributed across various tiers of government.
“In 2026, we will cease operating under the assumption that this financial burden can be left solely to the Federal Government, especially when the policy choices or political benefits are shared across governmental levels,” Yakubu asserted.
According to Yakubu, the President has mandated the utilization of the existing legal framework within the electricity sector to ensure that subsidy sharing is practical, transparent, and enforceable.
“This implies that subsidy costs must be clearly defined, tracked, and adequately funded to prevent them from re-emerging as arrears, liquidity shortages, or concealed liabilities within the market,” he explained. “If any level of government opts for affordability interventions, the funding responsibilities must be clearly defined, mutually agreed upon, and legally enforceable,” he elaborated.
Currently, the Federal Government funds electricity subsidies through direct budgetary allocations, primarily directed through the Federal Ministry of Finance to the Nigerian Bulk Electricity Trading Plc (NBET).
NBET serves as an intermediary, purchasing electricity from generation companies (GenCos) and selling it to distribution companies (DisCos) at regulated tariffs, which are often lower than the actual cost of production.
The resulting difference between the regulated tariff and the actual cost of electricity generation is effectively covered by government subsidies. These subsidies are intended to protect consumers from the full cost of electricity while maintaining stability within the power market.
However, this subsidy framework has placed increasing strain on federal finances, and accumulating unpaid obligations have led to a significant increase in the sector’s debt.
By the close of 2025, total outstanding sector debt, including unpaid obligations to generation companies and other power entities, is projected to increase to approximately N6.5 trillion, up from around N4 trillion earlier in the year. This increase is attributed to unfunded subsidy shortfalls and inadequate payments to power producers.
This situation has led to the proposed 2026 measure to deduct N1.2 trillion directly from the Federation Account for electricity subsidies. This initiative aims to make payments explicit, transparent, and shared among federal, state, and local governments, with the goal of addressing both fiscal sustainability and operational efficiency within the Nigerian Electricity Supply Industry (NESI).
By deducting funds directly from the Federation Account—the central revenue pool managed by the Federation Account Allocation Committee (FAAC) before revenue distribution—the government intends to encourage states and local governments to prioritize efficiency and provide targeted support for vulnerable households.
