FG Directs States to Share Electricity Subsidy Burden with Federal Govt from 2026

In a bold move to address the escalating financial strain in Nigeria’s power sector, President Bola Ahmed Tinubu has directed that state governments must now share the cost of electricity subsidies with the Federal Government starting from 2026. This directive aims to ensure transparency, accountability, and sustainability in funding subsidies, which have long been shouldered solely by the centre, leading to mounting debts and liquidity crises.

Vanguard reports that the funding for these subsidies will be drawn from the Power Assistance Consumers Fund (PCAF), a government-backed financial pool specifically designed to subsidise electricity bills for low-income and vulnerable households. The PCAF seeks to maintain affordability amid rising tariffs, while stabilising the sector through targeted support rather than blanket subsidies.

According to recent data, the Federal Government disbursed a staggering N1.98 trillion in electricity subsidies between September 2024 and October 2025 alone, highlighting the unsustainable nature of the current model. Furthermore, a proposed N3.6 trillion deduction from the Federation Account has been earmarked for subsidies covering 2026, 2027, and 2028, underscoring the need for shared responsibility across all tiers of government.

More than 18 states are already operating their own regulatory agencies, with others poised to follow suit. These include Lagos, Ondo, Osun, Ekiti, Edo, Delta, Bayelsa, Akwa Ibom, Cross River, Abia, Anambra, Imo, Kogi, Niger, Nasarawa, Plateau, Gombe, and Jigawa. This development aligns with the Electricity Act of 2023, which decentralised power generation and distribution, empowering states to play active roles in the sector.

The announcement was made by Mr. Tanimu Yakubu, Director-General of the Budget Office of the Federation (BoF), during the opening of the 2026 Post-Budget Preparation workshop using the Government Integrated Financial Management System (GIFMIS) in Abuja. In an address delivered on his behalf by the Director of Expenditure Social, Mr. Yusuf Muhammed, Yakubu emphasised the need for a clearer framework to distribute the subsidy burden.

“Mr. President has directed that we operationalise a clearer framework to share the cost of electricity across the federation, so the burden is not treated as an open-ended fiscal residual,” Yakubu stated. “If you want a stable power sector, we must pay for the choices we make. When tariffs are held low cost, a gap is created. That gap is a subsidy, and a subsidy is a bill.“

He added: “In 2026, we will stop pretending that this bill can be left to the Federal Government alone, especially where the policy choice or the political benefit is shared across tiers of government. Mr. President directed us to invoke the electricity sector legal framework to make burden-sharing practical and transparent.”

Yakubu further stressed that subsidy costs must be explicit, tracked, and funded to prevent them from resurfacing as arrears or hidden liabilities. “This is not punishment. It is an alignment. When everyone carries a fair share of the cost, everyone also has an incentive to support cost-effective, efficiency-targeted protection for the vulnerable,” he explained.

The DG also highlighted President Tinubu’s directive to review the Fiscal Responsibility Framework for enhanced dynamism, including clearer fiscal anchors and tighter discipline on contingent liabilities. For Ministries, Departments, and Agencies (MDAs), this means capital proposals must be delivery-ready and finance-ready, shifting focus from mere project listings to actual completion through proper scoping, costing, and funding mixes like Public-Private Partnerships (PPPs).

As earlier reported by NaijaChoice News, the power sector has faced chronic challenges, including massive debts owed to Generation Companies (GENCOs) and gas suppliers, estimated at over N5 trillion as of last year. This new policy echoes previous reforms, such as the removal of fuel subsidies, where states indirectly bore costs through reduced Federation Account remittances.

Reactions Trail the Directive

The Nigerian Governors’ Forum (NGF) responded cautiously. Director of Media and Communications, Yunusa Abdullahi, said: “We are reviewing the context and content of the information. We will not be making further comments on it.”

State Electricity Regulatory Commissions (SERCs) from states like Lagos, Imo, Enugu, Ekiti, Oyo, Ondo, Edo, Niger, and Anambra held an emergency virtual meeting to assess the implications. An anonymous member noted: “We cannot make our official position known immediately. We are hearing it for the first time and currently meeting to review it. We need to understand the issue before responding or reacting to it.”

Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprises (CPPE), supported the move, arguing that states must act as active partners. “This model is not different from the model we had with the fuel subsidy. All the states and local governments that had anything to do with FAAC allocation are paying for it,” he said.

Yusuf warned that the subsidy figures are ballooning, with GENCOs and gas suppliers owed about N5 trillion as of mid-2025. “A subsidy regime that’s obviously difficult for the Federal Government alone to continue to carry is one that is not so sustainable,” he added, noting the political infeasibility of full removal amid economic hardships and the pre-election year.

Public reactions on social media platforms like X (formerly Twitter) have been mixed, with some users criticising the government for hidden subsidies despite earlier claims of removal. One post highlighted: “Nigeria politicians are ‘Evil’ For years, Nigerians were told electricity subsidy was removed. We endured higher tariffs and endured darkness.” Energy expert Nick Agule pointed out disparities, stating: “I pay more for electricity in Nigeria than I pay for constant electricity in the UK.”

This policy shift is seen as a step towards fundamental reforms, but experts like Yusuf caution that deeper changes are needed for a truly cost-reflective tariff system. As Nigeria grapples with power shortages and economic volatility, the success of this burden-sharing will depend on enforcement and collaboration across government levels.