In a sweeping policy shift aimed at stabilizing Nigeria’s troubled power sector, the Federal Government has announced it will no longer shoulder electricity subsidy costs alone, introducing a cost-sharing framework that will distribute the financial burden across federal, state, and local governments beginning in 2026.
The announcement, made Monday by Tanimu Yakubu, Director-General of the Budget Office of the Federation, represents one of the most significant structural reforms to Nigeria’s electricity sector financing in years and comes as the government grapples with mounting subsidy obligations that reached N1.98 trillion over the past 12 months.
Speaking at a training workshop for ministries, departments, and agencies in Abuja, Yakubu revealed that President Bola Tinubu has directed that electricity subsidies be made transparent, properly accounted for, and equitably shared across all levels of government—a departure from decades of practice where the federal government has borne these costs in isolation.
“If we want a stable power sector, we must pay for the choices we make,” Yakubu declared, framing the issue in stark economic terms. “When tariffs are held below cost, a gap is created. That gap is a subsidy. And a subsidy is a bill.”
Hidden Liabilities Threaten Power Market Stability
The Budget Office chief warned that the current approach of treating electricity subsidies as an informal, open-ended federal obligation has created what he described as “hidden liabilities and recurring crises in the power market.” These accumulated costs have manifested as arrears to generation companies and persistent liquidity challenges that have hamstrung the sector’s ability to deliver reliable power to consumers.
According to recent data from the Nigerian Electricity Regulatory Commission, the Federal Government incurred N1.98 trillion in electricity subsidy obligations between October 2024 and September 2025 alone. This mounting burden comes on top of over N4 trillion in outstanding debt owed to power generation companies—a crisis that has threatened the viability of the entire electricity value chain.
“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 stated emphatically, signaling an end to what officials view as an unsustainable status quo.
Invoking Legal Framework for Enforcement
Under the new framework, President Tinubu has instructed that existing electricity sector legislation be invoked to ensure subsidy cost-sharing is not merely aspirational but “practical, transparent, and enforceable.” The mechanism will require that any tier of government choosing to implement affordability interventions—such as keeping tariffs artificially low—must clearly identify funding sources and commit to paying its share.
“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,” Yakubu explained. “If any tier of government chooses affordability interventions, the funding responsibilities must be clear, agreed, and enforceable.”
The policy aims to create accountability where political decisions regarding electricity pricing are made, ensuring that the financial consequences of such decisions are borne by those making them rather than being invisibly absorbed by the federal treasury.
Alignment, Not Punishment
Yakubu was careful to characterize the reform not as a penalty against states and local governments but as a necessary realignment of incentives designed to promote efficiency across the power sector.
“This is not punishment. It is alignment,” he said. “When everyone carries a fair share of the cost, everyone also has an incentive to support cost-reflective efficiency, targeted protection for the vulnerable, and a power market that can actually deliver.”
The framework anticipates that when subnational governments face direct financial responsibility for subsidies, they will become more engaged partners in promoting cost-reflective tariffs, improving collection efficiency, and ensuring that any subsidies are properly targeted toward vulnerable populations rather than being blanket interventions.
Broader Budget Reform Initiative
The electricity subsidy restructuring forms part of a larger overhaul of Nigeria’s budgeting process for 2026. Yakubu announced that the upcoming budget would mark “a clear break from rollover budgeting and fragmented project lists” that have historically weakened execution and accountability.
“The 2026 Budget corrects this. It is built as one coherent implementation framework,” he said, describing a shift toward consolidating commitments into a unified pipeline managed as “a disciplined program of delivery.”
Central to this transformation is the Government Integrated Financial Management Information System Budget Preparation Sub-System (GIFMIS-BPS), which Yakubu described as “the operating system for credible budgeting.” The platform is designed to enhance transparency and traceability throughout the budget cycle, from initial submissions through final execution.
MDAs Warned on Compliance
In direct instructions to government agencies, Yakubu directed ministries, departments, and agencies to explicitly reflect subsidy-related costs in their 2026 budget submissions and avoid the practice of pushing unfunded liabilities into the electricity market—a pattern that has contributed to the sector’s chronic financial instability.
“The success of the Renewed Hope Agenda is shared,” Yakubu told workshop participants. “The Budget Office will coordinate and enforce standards. But delivery depends on every MDA. Nigerians expect results. And through a credible 2026 budget, we must deliver.”
Implications for Power Sector
Energy sector analysts have long identified subsidy-related liquidity challenges as among the most critical obstacles to improving electricity supply in Africa’s most populous nation. The uncertainty around subsidy payments has deterred investment, prevented necessary infrastructure upgrades, and left generation companies unable to pay gas suppliers—creating a vicious cycle of inefficiency and unreliability.
By making subsidy costs explicit and distributable, the new framework could theoretically create more sustainable financing for the sector while also introducing political pressure at state and local levels to rationalize electricity pricing and improve operational efficiency.
However, the success of the initiative will depend heavily on the federal government’s ability to enforce compliance from states and local governments, many of which face their own severe fiscal constraints and may resist assuming additional financial burdens.
As Nigeria continues grappling with one of the world’s most challenging electricity sectors—despite being Africa’s largest economy—the 2026 subsidy-sharing framework represents a bold attempt to address structural financing problems that have persisted for decades. Whether it can deliver the promised stability remains to be seen, but officials are clear that the status quo is no longer tenable.
The workshop concluded with a call for all government entities to align with the new budget expectations ahead of the 2026 fiscal year, setting the stage for what officials hope will be a turning point in Nigeria’s long struggle to power its economy and meet the needs of its citizens.
WHAT YOU SHOULD KNOW
Nigeria is ending the federal government’s solo burden of electricity subsidies. Starting in 2026, states and local governments must share the N1.98 trillion annual subsidy costs—a major shift aimed at fixing the power sector’s chronic debt crisis.
The message is clear: if any government tier chooses to keep electricity prices artificially low for political reasons, it must pay its share of the bill. This “pay-for-what-you-choose” approach aims to stop hidden debts, force accountability, and finally stabilize a power sector crippled by over N4 trillion in unpaid obligations to generation companies.
