FG to Share Electricity Subsidy Burden With States in 2026
Atume Terfa
Nigeria’s electricity subsidy regime is set for a major overhaul as the Federal Government has announced plans to end its solo funding of power subsidies from 2026, opting instead for a cost-sharing arrangement with state and local governments.
The new direction, approved by President Bola Ahmed Tinubu, was unveiled by the Director-General of the Budget Office of the Federation, Dr. Tanimu Yakubu, during a budget preparation workshop in Abuja. The move signals a decisive break from past practice and reflects growing concerns over sustainability, transparency, and mounting fiscal pressure in the power sector.
Yakubu explained that under the revised framework, electricity subsidies must be clearly stated in budget proposals across all tiers of government. Rather than remaining hidden or absorbed at the federal level, subsidy costs will now be openly tracked and backed by defined funding commitments to prevent recurring liquidity shortfalls in the electricity market.
As part of the reform, Ministries, Departments and Agencies (MDAs) are required to explicitly account for subsidy-related expenses, while states and local councils pursuing electricity affordability measures must demonstrate how such interventions will be financed. According to Yakubu, the policy is designed to promote responsibility and efficiency, not to punish subnational governments.
The shift comes against the backdrop of rising subsidy costs that have placed heavy strain on public finances. Between October 2024 and September 2025 alone, the Federal Government reportedly spent close to ₦1.98 trillion on electricity subsidies, contributing to payment backlogs owed to power generation companies and weakening the sector’s financial stability.
President Tinubu has directed that existing electricity laws and regulatory instruments be used to enforce the new cost-sharing structure, stressing that subsidy payments should no longer be treated as an unlimited federal obligation—especially when policy decisions and political benefits extend beyond Abuja.
The initiative also aligns with broader reforms planned for the 2026 fiscal year, including efforts to improve budget transparency, eliminate unfunded liabilities, and strengthen the link between government spending and service delivery.
Meanwhile, state governments and industry regulators are studying the directive, weighing its fiscal implications and considering the frameworks required to implement the shared subsidy model effectively.
