FG Proposes N3.6 Trillion FAAC Deduction to Fund Electricity Subsidies from 2026 to 2028

The Federal Government has proposed a ₦3.6 trillion deduction from the Federation Account over three years to finance electricity subsidies from 2026 to 2028, in a major policy shift aimed at sharing the financial burden 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, signals a new approach to tackling Nigeria’s rising power sector subsidy obligations and improving fiscal transparency.

Under the plan, ₦1.2 trillion will be deducted annually in 2026, 2027, and 2028 to cover electricity subsidies, with the funds transferred directly to the Nigerian Bulk Electricity Trading Plc (NBET). The measure is intended to prevent subsidy debts from accumulating as hidden liabilities that could destabilise public finances.

The government’s move represents a strategic shift from the long-standing practice of the Federal Government solely funding electricity subsidies. Budget Office officials have indicated that President Bola Tinubu directed that subsidy costs be explicitly tracked and shared across all tiers of government.

“When tariffs are kept below cost, the difference becomes a subsidy, and that subsidy must be paid for,” the Budget Office Director-General, Tanimu Yakubu, had said, stressing that subsidy obligations must be transparent, funded, and enforceable.

Electricity subsidies have placed heavy pressure on federal finances, with outstanding sector liabilities projected to reach about ₦6.5 trillion by the end of 2025, up from around ₦4 trillion earlier in the year. Analysts say the debt surge is largely due to unfunded subsidy gaps and low payments to power generation companies.

Currently, the Federal Government channels subsidy payments through NBET, which purchases electricity from generation companies and sells it to distribution companies at regulated tariffs that are often below actual production costs. The resulting price gap is covered by government subsidies to protect consumers.

Under the proposed framework, subsidy funds will be deducted directly from the Federation Account Allocation Committee (FAAC) revenue pool before distribution to the Federal Government, states, and local governments. This means subnational governments will indirectly contribute to electricity subsidies through reduced revenue allocations.

Energy policy expert Habu Sadeik explained that the ₦1.2 trillion will be treated as a first-line deduction from gross FAAC revenue, ensuring subsidy payments are predictable and fully funded.

“This is no longer something the Federal Government will try to settle later through its own budget. The money will be paid to NBET before revenue distribution,” he said.

Power sector advocate Adetayo Adegbemle, Executive Director of PowerUp Nigeria, welcomed the proposal, describing it as consistent with federalism principles.

“All tiers of government will now contribute to electricity subsidy payments, which reflects shared responsibility in governance,” he said, adding that the move could improve accountability and reduce inefficiencies in the power sector.

However, he reiterated that subsidies should ideally be phased out in the long term, noting that the new framework would still significantly reduce the financial burden on the Federal Government.

The Ministry of Power also expressed support for the initiative, describing it as a step in the right direction. A spokesperson for the ministry said the policy aligns with ongoing efforts to stabilise the power sector and improve fiscal discipline.

The proposed deduction is expected to reduce the funds available to states and local governments, potentially forcing them to reassess spending priorities such as infrastructure, education, and healthcare. With projected FAAC revenue of about ₦41.06 trillion in 2026, upfront subsidy deductions will shrink distributable allocations to subnational governments.

State energy officials have reacted cautiously, saying they will study the policy’s implications before making a formal position known.