FG has planned N3.6tn FAAC Deduction for Electricity subsidies in 2026–2028.
NewsOnline Nigeria reports that the Federal Government has proposed a N3.6tn deduction from the Federation Account to fund electricity subsidies between 2026 and 2028, a move aimed at spreading the financial burden across 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 major shift in how electricity subsidies are financed in Nigeria. It is designed to address the rapidly growing subsidy debt that has strained liquidity in the power sector while improving fiscal transparency by making subsidy obligations explicit and properly accounted for.
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According to Table 6.2 of the MTEF document, electricity subsidy payments are pegged at N1.2tn annually in 2026, 2027 and 2028. The document states that “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.”
The planned deductions will be treated as first-line charges on gross Federation Account Allocation Committee (FAAC) revenue, meaning the funds will be removed before revenues are shared among the three tiers of government.
The approach aligns with earlier remarks 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, tracked and fairly shared.
“If we want a stable power sector, we must pay for the choices we make. When tariffs are held below cost, a gap is created. That gap is a subsidy. And a subsidy is a bill,” Yakubu said.
He added that from 2026, the Federal Government would no longer shoulder electricity subsidy costs alone, particularly where policy decisions and political benefits are shared across tiers of government. According to him, existing legal frameworks in the electricity sector would be applied to ensure subsidy sharing is transparent and enforceable.
Currently, electricity subsidies are funded through federal budgetary allocations, largely channelled to the Nigerian Bulk Electricity Trading Plc (NBET), which buys power from generation companies and sells to distribution companies at regulated tariffs below cost. The resulting gap has led to mounting unpaid obligations and rising sector debt.
By the end of 2025, total outstanding debt in the power sector is projected to reach about N6.5tn, up from around N4tn earlier in the year, largely due to unfunded subsidy shortfalls.
Energy policy expert, Habu Sadeik, explained that the N1.2tn annual subsidy captured in the MTEF-FSP will be deducted directly from gross FAAC revenue before distribution.
“What the government has done is to provide for a deduction at source from the gross FAAC revenue to NBET amounting to N1.2tn,” he said, noting that the approach mirrors the FAAC-funded structure used for the Presidential Metering Initiative.
Sadeik stressed that the new framework marks a fundamental shift from past practices where electricity subsidies were borne solely by the Federal Government.
“Before now, the burden was on the Federal Government alone. Under this new framework, the burden is shared by the entire federation—Federal Government, states and Local Governments,” he said.
Power sector advocate and Executive Director of PowerUp Nigeria, Adetayo Adegbemle, welcomed the proposal, describing it as consistent with the principles of federalism.
“This is in the spirit of federalism, where all federating units are involved in governance. Under this arrangement, the Federal Government, states and local governments will all contribute,” he said.
Although he maintained that electricity subsidies should ideally be phased out, Adegbemle said the proposal would reduce pressure on federal finances and improve accountability across the sector.
The Minister of Power, Adebayo Adelabu, through his media aide, Bolaji Tunji, also expressed support for the initiative, describing it as a step in the right direction.
However, the upfront FAAC deductions could significantly affect state and local government finances. With projected FAAC revenue of about N41.06tn in 2026, states and local governments may need to reassess spending on infrastructure, education and healthcare to accommodate their share of the subsidy cost.
Meanwhile, the Forum of State Commissioners of Power and Energy in Nigeria said it would study the proposal carefully before taking a position, stressing the need for expert analysis to fully understand its implications.
