Nigeria’s N3.6tn Power Subsidy: States to Share the Bill

The Federal Government of Nigeria has unveiled a seismic shift in the financial architecture of the nation’s power sector. In a move designed to stabilize the energy market and enforce fiscal discipline, a total of N3.6 trillion will be deducted from the Federation Account over the next three years to fund electricity subsidies.

This policy is detailed in the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) for 2026–2028. It signals the end of an era where the Federal Government (FG) shouldered the financial burden of power subsidies alone. Now, under a new “shared responsibility” model, state and local governments will become active contributors to the nation’s energy bills.

The N3.6 Trillion Financial Breakdown

According to the MTEF document, the Federal Government plans to implement a structured deduction of N1.2 trillion annually, beginning in the 2026 fiscal year. These funds will not pass through the standard budgetary process. Instead, they will be treated as a “first-line deduction” from the Federation Account Allocation Committee (FAAC) pool.

Projected Electricity Subsidy Deductions (2026–2028)

These funds are slated for direct transfer to the Nigerian Bulk Electricity Trading Plc (NBET). This strategic move aims to provide immediate liquidity to a sector currently suffocating under a projected N6.5 trillion debt by the end of 2025.

Why This Shift Matters: Ending “Open-Ended Obligations”

President Bola Tinubu has consistently advocated for a more transparent and explicit tracking of government spending. The Director-General of the Budget Office, Tanimu Yakubu, recently emphasized that the current system is unsustainable.

Yakubu argues that by making the subsidy a “bill” that everyone sees, the government can finally confront the systemic inefficiencies of the power sector.

“In 2026, we will stop pretending that this bill can be left to the Federal Government alone,” Yakubu stated. “When tariffs are held below cost, a gap is created. That gap is a subsidy. And a subsidy is a bill that must be paid.”

The logic is simple: if the benefits of lower tariffs reach citizens across all 36 states, then the financial responsibility should not rest solely with the center. This policy ensures that subsidies do not return as “hidden liabilities” that eventually cripple power generation companies (GenCos).

The “First-Line Deduction” Mechanism Explained

To understand how this affects national finances, one must look at the flow of revenue in Nigeria. Typically, revenue from taxes, oil, and duties flows into the Federation Account. This is the “Main Pool.” Under the new proposal, the N1.2 trillion annual subsidy is removed at the very beginning of the process:

1. The Gross Pool: All national revenue is collected.
2. The First-Line Deduction: N1.2 trillion is taken out immediately for electricity subsidies.
3. The Distributable Pool: Only the remaining amount is shared among the three tiers of government (Federal, State, and Local).

Consequently, every state and local government will see a reduction in their monthly “take-home” pay. While the Federal Government still pays the largest portion, sub-national governments are now effectively co-funding the power sector.

Industry Reaction: A Win for Federalism or a Fiscal Burden?

The proposal has sparked a heated debate between proponents of fiscal transparency and those concerned about state-level liquidity.

The Case for Transparency and Accountability

Adetayo Adegbemle, Executive Director of PowerUp Nigeria, views the move as a victory for true federalism. He believes that forcing states to contribute incentivizes them to monitor local electricity markets more closely.

• Incentive for Efficiency: States are more likely to audit their customer bases and reduce revenue leakages when the funds come directly from their allocations.
• The Exemption Clause: States that have established their own independent electricity markets under the amended Electricity Act may be exempted from this collective deduction. This encourages states to build their own power grids.

The Fiscal Challenge for State Governors

For many state governors, the deduction represents a significant challenge. With the FAAC revenue for 2026 projected at N41.06 trillion, an upfront deduction of N1.2 trillion significantly shrinks the available funds for other critical sectors.

Governors may find themselves forced to choose between funding electricity subsidies and investing in:

• Healthcare Infrastructure
• Primary and Secondary Education
• Rural Road Construction

Stabilizing the N6.5 Trillion Debt Crisis

Historically, Nigeria’s electricity subsidies were funded through ad-hoc budgetary allocations. These were often insufficient. For example, in 2024, the budget provided only N450 billion—a figure that barely scratched the surface of the actual shortfall.

By making the deduction automatic and predictable at the source, the government aims to:

• Boost Investor Confidence: GenCos will have a guaranteed stream of payment, reducing the risk of shutdowns.
• Prevent “Hidden” Debts: Accounting for the subsidy upfront prevents the “ballooning” of debt seen in the last decade.
• Targeted Support: The policy encourages states to prioritize support for vulnerable households rather than offering blanket subsidies.

Conclusion: A New Era for the Nigerian Power Market

The N3.6 trillion deduction plan is a bold attempt to fix the “liquidity trap” of the Nigerian Electricity Supply Industry (NESI). While the fiscal impact on states will be felt immediately, the long-term goal is a self-sustaining, debt-free power sector.

As 2026 approaches, the success of this policy will depend on whether states view it as a burden or an invitation to innovate. One thing is certain: the era of “hidden” electricity bills in Nigeria is officially over.

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