FG moves to share electricity subsidy costs
The Federal Government has announced plans to end the long-standing practice of bearing electricity subsidy costs alone, unveiling a framework that will see the financial burden shared among federal, state, and local governments beginning from the 2026 budget cycle.
The policy shift was disclosed on Monday in Abuja by Tanimu Yakubu, Director-General of the Budget Office of the Federation, during a training and sensitisation workshop for ministries, departments and agencies on the 2026 post-budget preparation process using the Government Integrated Financial Management Information System.
Yakubu said the directive followed instructions from President Bola Ahmed Tinubu, who has ordered that electricity subsidy costs be made explicit, transparently tracked, and equitably shared across the three tiers of government.
According to him, the existing approach — where the Federal Government absorbs most electricity subsidy obligations — has created hidden liabilities that repeatedly destabilise Nigeria’s power sector.
“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.”
Why the Federal Government Is Changing Course
For decades, electricity subsidies have been used to keep power tariffs affordable for households and businesses. However, officials say the cost of sustaining these subsidies has grown unsustainably, placing immense pressure on federal finances while creating persistent liquidity problems in the electricity value chain.
Under the new framework, subsidy obligations arising from tariff decisions will no longer be treated as implicit federal responsibilities. Instead, any decision to maintain electricity tariffs below cost must be accompanied by a clear funding plan shared among federal, state and local governments.
Yakubu explained that this approach is designed to align responsibility with decision-making, ensuring that subsidy choices are deliberate, funded, and accounted for in public budgets.
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What the New Electricity Subsidy Framework Means
The framework means that electricity subsidy costs will now be:
- Clearly identified in budget documents
- Tracked through approved financial systems
- Allocated across tiers of government based on agreed parameters
Officials say this will prevent subsidy arrears from building up quietly and later emerging as debts owed to power generation and distribution companies.
The move also signals a push toward fiscal discipline in the electricity sector, where unpaid subsidies have historically contributed to power shortages, poor service delivery, and investor uncertainty.
Impact on States and Local Governments
The policy represents a significant shift for state and local governments, many of which have had limited direct involvement in electricity subsidy financing despite benefiting from lower tariffs for residents and businesses.
Under the new arrangement, states will be expected to factor electricity subsidy costs into their medium-term expenditure frameworks and annual budgets where applicable. Local governments, through state coordination, will also share in the responsibility where subsidy decisions affect their jurisdictions.
Analysts say this could encourage states to take a more active role in electricity planning, including supporting power generation, distribution infrastructure, and targeted interventions for vulnerable consumers.
Link to Broader Power Sector Reforms
The subsidy cost-sharing plan aligns with broader reforms in Nigeria’s electricity sector, including efforts to improve cost recovery, attract investment, and decentralise aspects of power regulation.
By making subsidy costs explicit, the Federal Government hopes to encourage more realistic discussions around electricity pricing, targeted support for low-income consumers, and long-term sustainability of the power market.
Officials stress that the aim is not to remove social protection, but to replace opaque subsidies with transparent and accountable funding mechanisms.
Concerns and Public Debate
While the policy has been welcomed by some fiscal experts as overdue, it has also raised concerns about possible implications for electricity tariffs and household energy costs.
Critics warn that if states and local governments are unable or unwilling to fund their share of subsidies, pressure may mount for tariff increases. Others argue that transparent cost-sharing could ultimately lead to better service delivery and fewer power outages.
The Federal Government maintains that clarity, rather than concealment, is the only path to a stable electricity sector.
What Happens Next
As preparations for the 2026 budget continue, ministries and agencies have been directed to reflect electricity subsidy costs clearly in their submissions. The Budget Office will assess compliance and implementation readiness before approvals are granted.
The coming months will determine how effectively the new framework is adopted and whether states and local governments are prepared to shoulder their share of electricity subsidy costs.
For now, the announcement marks a turning point in how Nigeria manages one of its most sensitive economic issues — the price and availability of electricity.
Ogele Verdict
The decision to share electricity subsidy costs across all tiers of government is a quiet but far-reaching reform. It forces transparency where ambiguity once thrived and makes every level of government accountable for the economic choices it supports.
Whether it delivers a more stable power sector will depend not just on policy design, but on political will and fiscal discipline at every level of governance.
FG moves to share electricity subsidy costs
FG moves to share electricity subsidy costs
