The Federal Government has proposed deducting a total of N3.6 trillion from the Federation Account to fund electricity subsidies over 2026, 2027, and 2028.

This initiative aims to distribute the financial burden of electricity subsidies across the federal, state, and local government tiers.

The proposal addresses the mounting electricity subsidy debt that has limited liquidity in the power sector.

It also promotes fiscal transparency by making subsidy obligations clear and properly accounted for.

According to The PUNCH, the deduction details appear in the Medium-Term Expenditure Framework Fiscal Strategy Paper for 2026–2028.

According to Table 6.2 of the MTEF document, under “Other FAAC Deductions,” the electricity subsidy stands at N1.2 trillion for 2026.

This amount is projected to remain N1.2 trillion in both 2027 and 2028.

“The document read, “Transfer to NBET (Electricity Subsidy) is estimated at N1.2tn in the 2026 budget proposal and projected to remain at N1.2tn each in 2027 and 2028.””

This approach follows earlier indications from the Budget Office of the Federation to end the Federal Government’s sole responsibility for electricity subsidies.

Budget Office DG Tanimu Yakubu spoke during a training and sensitisation workshop for ministries, departments, and agencies on the 2026 post-budget preparation process.

President Bola Tinubu directed that electricity subsidy costs be made explicit, tracked, and shared fairly across government tiers.

“If we want a stable power sector, we must pay for the choices we make,” he said. “When tariffs are held below cost, a gap is created. That gap is a subsidy. And a subsidy is a bill.”

He added that from 2026, the Federal Government would no longer treat electricity subsidies as an open-ended obligation borne solely by the centre, especially where policy decisions and political benefits are shared.

“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,” Yakubu said.

The President instructed the use of the existing electricity sector legal framework to make subsidy sharing practical, transparent, and enforceable.

“This means subsidy costs must be explicit, tracked, and funded, so they do not return as arrears, liquidity crises, or hidden liabilities in the market,” he said. “If any tier of government chooses affordability interventions, the funding responsibilities must be clear, agreed, and enforceable,” he stated.

Currently, the Federal Government funds electricity subsidies through direct budgetary allocations via the Federal Ministry of Finance to the Nigerian Bulk Electricity Trading Plc (NBET).

NBET purchases electricity from generation companies and sells it to distribution companies at regulated tariffs below actual production costs.

The government covers the resulting gap to protect consumers and maintain market stability.

This framework has strained federal finances, with accumulating unpaid obligations driving sector debt higher.

By the end of 2025, total outstanding sector debt is projected to reach about N6.5 trillion, up from around N4 trillion earlier in the year, due to unfunded subsidy shortfalls and low payments to producers.

The proposed N1.2 trillion annual deduction from the Federation Account seeks to make payments explicit, transparent, and shared.

It aims to enhance fiscal sustainability and operational efficiency in the Nigerian Electricity Supply Industry.

Deducting from the Federation Account, managed by the Federation Account Allocation Committee before distribution, encourages states and local governments to focus on efficiency and support vulnerable households.

Energy policy expert Habu Sadeik explained that the N1.2 trillion will be deducted directly from the FAAC pool before revenue sharing among tiers.

“What the government has done is to provide for a deduction at source from the gross FAAC revenue to the Nigerian Bulk Electricity Trading Plc (NBET) amounting to N1.2tn,” Sadeik said.

He compared it to the Presidential Metering Initiative, where about N800 billion has been deducted from FAAC over time for nationwide metering.

“For example, if total FAAC revenue in a particular month is N1tn and N200bn is deducted upfront, it means every state and local government has indirectly contributed to that N200bn,” he said.

“This money is planned to be paid to NBET ahead of distribution. It is no longer something the Federal Government will try to settle later through its own budget,” Sadeik explained.

“The key difference is the burden,” he said. “Before now, the burden of electricity subsidy was on the Federal Government alone. Under this new framework, the burden is shared by the entire federation, the Federal Government, states, and Local Governments.”

He added that previous provisions were inadequate compared to liabilities.

“In 2024, only about N450bn was provided in the budget. In 2025, it increased to N900bn, but these amounts were still far below the level of accumulated subsidy obligations,” he said.

The planned deduction closes the funding gap by making subsidies explicit, predictable, and sustainably funded.

Executive Director and Convener of PowerUp Nigeria, Adetayo Adegbemle, applauded the initiative as aligned with federalism principles.

“This is in the spirit of federalism, where all federating units are involved in government. Under this arrangement, the Federal Government, the states, and the local governments will all contribute to the payment of electricity subsidy,” he said.

“I don’t know if the government has already worked out all the details, but this is a good development because all levels of government can come in and make their own contributions,” he added.

He noted it applies mainly to states without their own electricity markets under the amended Electricity Act.

“As earlier mentioned, this will involve all states that have not created their state electricity markets. States that have already set up functional local electricity markets will be exempted,” Adegbemle said.

“Even though some of us have advocated for the complete removal of the electricity subsidy, this move will drastically reduce the burden on the Federal Government and also bring more accountability,” he said.

“This will force every level of government to take responsibility for auditing their customer base and their connections to the national grid,” he added.

Minister of Power Adebayo Adelabu, through media aide Bolaji Tunji, supported the framework.

“This announcement was made by the Director-General of the Budget Office, and his office should be contacted for further clarification on the implementation strategy. However, we agree with him on this,” Tunji said.

The deduction will reduce distributable FAAC revenue for states and local governments.

Under the current formula, states get 26.72 per cent of the Main Pool, and local governments 20.60 per cent.

With projected 2026 FAAC revenue at about N41.06 trillion, states would receive roughly N10.97 trillion and local governments N8.45 trillion without deductions.

Governors may need to reallocate funds from infrastructure, education, and healthcare.

The Forum of State Commissioners of Power and Energy in Nigeria (FOCPEN) stated that President Tinubu would not act against the masses’ interests.

FOCPEN Chairman Prince Eka Williams, also Cross River State Commissioner for Power and Renewable Energy, said the forum would review the matter thoroughly.

“If that’s what the Federal Government has said, we have to look at it and digest it very well. We have to look at the pros and cons. For now, we have not seen a copy of what the president said.

“But I’m sure what the government would do would be in the interest of Nigerians. I know he’s a President who cares about the masses. We have not seen him sign into law an anti-people bill,” Williams said.

“Let experts look at the policy very well, not just relying on what people have interpreted it to be. Let experts look at it, and in no distant time, we will make a public statement,” he submitted.