- The Federal Government proposed a ₦3.6 trillion deduction from FAAC to fund electricity subsidies between 2026 and 2028
- The policy shifted subsidy funding to a first-line deduction shared by federal, state, and local governments
- Officials said the move would curb rising power sector debt but could reduce revenues available to states and councils
The Federal Government has proposed a ₦3.6 trillion deduction from the Federation Account to fund electricity subsidies between 2026 and 2028, in a major policy shift aimed at sharing the financial burden of power-sector subsidies among the federal, state, and local governments.
The proposal, contained in the Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF–FSP) for 2026–2028, represents a decisive move to address the rapidly rising electricity subsidy debt, which continues to strain liquidity in the Nigerian Electricity Supply Industry (NESI). The PUNCH analysed the document on Tuesday.
According to Table 6.2 of the MTEF, which outlines “Other FAAC Deductions” under the Federation Account Revenue Main Pool, electricity subsidy funding has been pegged at ₦1.2 trillion annually for 2026, 2027, and 2028. This brings the total proposed deduction over the three years to ₦3.6 trillion.
The document states that “Transfer to NBET (Electricity Subsidy) is estimated at ₦1.2tn in the 2026 budget proposal and projected to remain at ₦1.2tn each in 2027 and 2028.” The funds are to be transferred to the Nigerian Bulk Electricity Trading Plc (NBET), which purchases electricity from generation companies and sells it to distribution companies at regulated tariffs.
The proposal aligns with earlier statements by the Director-General of the Budget Office of the Federation, Tanimu Yakubu, who said President Bola Tinubu had directed that electricity subsidies be made explicit, properly tracked, and fairly shared among all tiers of government.
“If we want a stable power sector, we must pay for the choices we make,” Yakubu had said. “When tariffs are held below cost, a gap is created. That gap is a subsidy, and a subsidy is a bill.”
Under the new framework, electricity subsidies will be treated as a first-line deduction from gross FAAC revenue before distribution to the Federal Government, states, and local governments. This marks a departure from previous practice, where the Federal Government bore the subsidy burden almost entirely through budgetary provisions.
Energy policy expert Habu Sadeik explained that the ₦1.2 trillion allocation would be deducted directly from the FAAC pool before revenues are shared. “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,” he said.
Sadeik noted that the approach mirrors the funding model for the Presidential Metering Initiative, under which about ₦800 billion has been allocated from FAAC over time to support nationwide metering.
By the end of 2025, outstanding electricity sector debt is projected to rise to about ₦6.5 trillion, up from roughly ₦4 trillion earlier in the year, largely due to unfunded subsidy obligations. The proposed FAAC deduction is intended to prevent further accumulation of arrears, improve transparency, and ensure predictable funding.
Commenting on the proposal, the Executive Director of PowerUp Nigeria, Adetayo Adegbemle, described it as consistent with the principles of federalism. He said shared responsibility would improve accountability and reduce inefficiencies in the sector, even as he reiterated his view that electricity subsidies should eventually be phased out.
The Minister of Power, Adebayo Adelabu, through his media aide, Bolaji Tunji, said the ministry supports the proposal, describing it as a step in the right direction for improving sustainability in the power sector.
However, the deduction is expected to reduce the revenue available to states and local governments, potentially forcing governors to reassess spending priorities. With projected FAAC revenue for 2026 estimated at ₦41.06 trillion, the upfront subsidy deduction could significantly impact sub-national allocations.
Meanwhile, the Forum of State Commissioners of Power and Energy in Nigeria said it would study the proposal carefully before taking a formal position, noting that it was confident the Federal Government would act in Nigerians' interest.