President Bola Ahmed Tinubu has issued a decisive directive that marks a major shift in how Nigeria will finance electricity subsidies, ordering that state governments must now share the cost of subsidising power alongside the Federal Government starting from the 2026 budget cycle.
The bold move is aimed at creating greater transparency and accountability in the nation’s power sector and preventing hidden liabilities that have long burdened electricity markets and stakeholders.
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The new policy mandate was outlined by Dr. Tanimu Yakubu, Director-General of the Budget Office of the Federation, during a keynote address at the kickoff of the 2026 Post-Budget Preparation Workshop in Abuja on Monday.
Speaking on behalf of Tinubu, Yakubu explained that although electricity affordability interventions have political popularity, the associated financial responsibilities can no longer be left solely to the Federal Government.
Instead, costs will be shared transparently across Federal, State and Local Governments to ensure that affordability measures are sustainable and do not accumulate into arrears or hidden liabilities within the market.
Naija News Under the new framework, all tiers of government not just the Federal Government will be expected to explicitly identify, track and fund electricity subsidy costs in their annual budgets.
Yakubu stressed that when any level of government chooses to keep electricity tariffs below cost, “a gap is created. That gap is a subsidy and a subsidy is a bill,” underscoring the imperative of responsible budgeting and fiscal accountability.
One of the mechanisms expected to support this shared cost model is the Power Assistance Consumers Fund (PCAF), a government-backed pool established to subsidise electricity bills for low-income and vulnerable households.
Traditionally, subsidies in the power sector have been borne predominantly by the federal budget, contributing to liquidity pressures on distribution companies (DisCos), generation companies (GenCos), and other industry players.
With states now formally included in the financing arrangement, Abuja aims to align incentives across the federation and strengthen the viability of the electricity supply chain.
The shift comes at a critical time for Nigeria’s power sector, which has struggled with chronic under-investment, inconsistent tariff structures, and escalating subsidy liabilities that have weighed on both public finances and industry stability.
By mandating that costs be visible in budget proposals and equitably shared, the Tinubu administration hopes to discourage the accumulation of unpaid obligations that later surface as arrears, liquidity crises, and market distortions.
Reactions to the announcement have been measured. The Nigerian Governors’ Forum (NGF) said it is still reviewing the details of the directive and will respond after a thorough assessment.
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Meanwhile, several State Electricity Regulatory Commissions held emergency consultations to understand the policy’s implications for state budgets and regulatory authority.
Some stakeholders have signalled caution, noting the need to clarify how contributions will be calculated and what safeguards will be put in place to protect financially vulnerable states.
Experts and industry observers have also weighed in. Supporters of the change argue that involving states more directly in subsidy financing could accelerate the broader adoption of cost-reflective tariffs, targeted affordability programs, and local investments in electricity infrastructure.
Critics, however, question the Federal Government’s constitutional authority to obligate states financially and call for a clear legal framework outlining how cost shares will be determined and enforced.
Despite these debates, the policy clearly signals a shift in Nigeria’s approach to power sector reform one that prioritises fiscal discipline, budget transparency, and shared responsibility among all levels of government.
Whether this direction will yield improved stability in Nigeria’s electricity supply and financial flows within the sector remains an important question as the 2026 budget process unfolds and the new cost-sharing arrangements take effect.
Source: Naija News
