To distribute the cost among the federal, state, and local governments, the federal government has suggested using N3.6 trillion out of the Federation Account to pay for energy subsidies in 2026, 2027, and 2028. In addition to enhancing fiscal transparency by making subsidy commitments clear and well-accounted for, this would allow the federal government to address the rapidly growing electricity subsidy debt, which has severely limited liquidity across the power sector. The power subsidy for 2026 is estimated to be N1.2 trillion, according to Table 6.2 of the MTEF document, which lists "Other FAAC Deductions" under the Federation Account Revenue—Main Pool, VAT, and Stamp Duty.
It is anticipated to stay at this level until 2027 and 2028, demonstrating the government's resolve to stabilize the industry while averting a financial crisis caused by concealed liabilities. The suggested strategy is in line with previous declarations made by the Federation's Budget Office, which revealed intentions to stop the federal government from paying for electricity subsidies on its own.
The federal government now provides power subsidies through direct budgetary allocations, which are mainly sent to Nigerian Bulk Power Trading Plc through the Federal Ministry of Finance. As a middleman, NBET buys energy from GenCos and sells it to DisCos at set prices that are frequently less than the true cost of production for distribution businesses.
Government subsidies, which are intended to protect customers from the full cost of electricity while preserving power market stability, effectively bridge the gap between the regulated rate and the cost of energy generation. But this system of subsidies has put increasing pressure on federal coffers, and mounting unpaid debt has led to a sharp rise in sector debt.
Unfunded subsidy shortfalls and inadequate payments to power producers are expected to cause the entire outstanding sector debt, including unpaid obligations to generating and other power companies, to increase from approximately N4 trillion earlier in the year to over N6.5 trillion by the end of 2025.
In order to address both fiscal sustainability and operational efficiency in NESI, the proposed 2026 measure to deduct N1.2 trillion directly from the Federation Account for electricity subsidies aims to make payments explicit, transparent, and shared among federal, state, and local governments.
In order to encourage states and local governments to prioritize efficiency and offer targeted support for vulnerable households, the government takes money directly from the Federation Account, the central revenue pool overseen by the Federation Account Allocation Committee, prior to revenue distribution.
The N1.2 trillion designated in the Medium-Term Expenditure Framework and Fiscal Strategy Paper will be taken directly from the Federation Account Allocation Committee pool before revenues are distributed among the three levels of government, according to energy policy expert Habu Sadeik, who offered more details on the federal government's proposed electricity subsidy funding framework.
When contacted, Adebayo Adelabu, the Minister of Power, stated through Bolaji Tunji, his media assistant, that the ministry is in favor of the proposed electricity subsidy funding system and that it is a positive move for the power industry. He clarified that although the Director-General of the Budget Office made the announcement, the Ministry of Power supports the effort and concurs with its fundamental goals.
For state and local governments, the planned N1.2 trillion FAAC deduction for electricity subsidies has important ramifications. States are entitled to 26.72 percent of the Main Pool under the current FAAC revenue-sharing model, while local governments receive 20.60 percent. The estimated N41.06 trillion in FAAC revenue for 2026 translates to about N10.97 trillion for states and N8.45 trillion for local governments.
However, there would be less money available for distribution to subnational governments because the electricity subsidy will be taken out of the total FAAC earnings up front. In order to cover their portion of the subsidy payment, governors may need to reevaluate funding for vital areas like infrastructure, healthcare, and education.
State energy commissioners respond. According to the Forum of State Commissioners of Power and Energy in Nigeria, President Bola Tinubu will not act in a way that would be detrimental to the interests of the general public.
