Nigeria will end the practice of funding electricity subsidies solely from the federal budget starting in 2026, shifting the financial burden to be shared among federal, state and local governments, a senior budget official said.
Tanimu Yakubu, director general of the Budget Office of the Federation, said the move followed a directive from President Bola Tinubu aimed at creating a clearer and more sustainable framework for financing electricity subsidies amid mounting fiscal pressures.
Speaking at a workshop in Abuja on preparations for the 2026 federal budget, Yakubu said the federal government would no longer absorb the full cost when electricity tariffs are set below the actual cost of supply.
“Where tariffs are not cost-reflective, the associated subsidy will no longer be funded exclusively by the federal government,” Yakubu said. “Each level of government will be responsible for financing the subsidy implications of its own policy decisions.”
Under the new approach, subsidy costs will be apportioned among the three tiers of government in line with tariff-setting responsibilities and consumption patterns, according to guidelines issued by the Budget Office. The framework will operate within Nigeria’s existing electricity laws, without requiring immediate legislative amendments.
Relevant ministries, departments and agencies will now be required to explicitly include electricity subsidy obligations in their budget submissions from 2026, Yakubu said, marking a shift toward greater transparency in power-sector spending.
Electricity subsidies have long been a strain on Nigeria’s public finances. While the government has implemented a series of tariff increases since 2023 as part of broader economic reforms, prices remain below cost for many consumer categories, particularly residential users.
Despite recent adjustments, public spending on electricity subsidies remains substantial. In the first quarter of 2025 alone, the federal government spent about three hundred and fifty million dollars covering shortfalls in the wholesale electricity market, according to figures published by the Nigerian Electricity Regulatory Commission.
More Read
The subsidies are primarily used to bridge the gap between revenues collected by distribution companies and payments owed to power producers and transmission operators, helping to prevent a deeper liquidity crisis in the sector.
Nigeria’s power industry has struggled for years with chronic underinvestment, mounting debt and operational inefficiencies, resulting in unreliable electricity supply for households and businesses. The country of more than two hundred million people generates far less power than demand requires, forcing many firms and households to rely on expensive diesel generators.
The government has said that subsidy reform is essential to restoring financial viability to the sector and attracting private investment. Officials have also launched initiatives to address legacy debts owed to electricity producers, some of which date back several years.
According to official estimates, Nigeria will need investments of about thirty-four billion dollars over the long term to achieve universal access to electricity and modernise its transmission and distribution networks.
Analysts say the decision to share subsidy costs across all levels of government could help ease pressure on federal finances, but warn it may prove politically sensitive, particularly for cash-strapped state and local governments.
State governments already face rising wage bills and growing demands for social spending, while local governments depend heavily on federal transfers. Requiring them to absorb part of electricity subsidy costs could constrain their budgets unless accompanied by broader fiscal reforms.
More Read
However, supporters of the policy argue that it could encourage more disciplined tariff-setting and energy planning at the subnational level, reducing incentives to keep prices artificially low without accounting for fiscal consequences.
The move aligns with President Tinubu’s broader economic agenda, which has focused on reducing subsidies, boosting revenue and restoring investor confidence since he took office in 2023. While fuel subsidies were largely removed early in his administration, electricity subsidies have proven more difficult to unwind due to concerns over affordability and social impact.
Officials say the new cost-sharing framework represents a compromise aimed at balancing fiscal sustainability with the need to protect consumers as Nigeria continues its gradual reform of the power sector.
