FG electricity subsidy deduction plan targets N3.6tn from FAAC to stabilise the power sector and share costs across governments

The Federal Government of Nigeria has proposed a N3.6tn electricity subsidy deduction from the Federation Account between 2026 and 2028 to stabilise the power sector and curb rising debt.

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The proposal, contained in the Medium-Term Expenditure Framework and Fiscal Strategy Paper for 2026 to 2028, was analysed on Tuesday and details a N1.2tn annual deduction to fund electricity subsidies.

According to the document, the deduction will be made directly from the Federation Account Allocation Committee pool before revenues are shared among the Federal Government, states, and local governments.

The FG electricity subsidy deduction marks a decisive shift from the long-standing practice of the Federal Government bearing the full cost of power subsidies.

The document states that the N1.2tn transfer to the Nigerian Bulk Electricity Trading Plc will apply in 2026, 2027, and 2028.

It adds that the approach is designed to improve fiscal transparency by making subsidy obligations explicit and preventing hidden liabilities.

Director-General of the Budget Office of the Federation, Tanimu Yakubu, said President Bola Tinubu approved the framework to ensure subsidy costs are tracked and fairly shared.

Yakubu said electricity subsidies represent a bill created when tariffs are kept below cost and must be paid transparently.

He added that from 2026, the Federal Government will no longer treat electricity subsidies as an open-ended obligation of the centre alone.

The FG electricity subsidy deduction is also aimed at addressing liquidity constraints in the Nigerian Electricity Supply Industry.

By the end of 2025, outstanding sector debt is projected to reach about N6.5tn, driven largely by unfunded subsidy shortfalls.

Energy policy expert Habu Sadeik said the N1.2tn provision will be deducted at source from gross FAAC revenue and paid directly to NBET.

Sadeik explained that the deduction will reduce distributable revenue to states and local governments, effectively spreading the burden across the federation.

He said the approach mirrors earlier FAAC deductions used to fund the Presidential Metering Initiative.

Executive Director of PowerUp Nigeria, Adetayo Adegbemle, described the proposal as consistent with the principles of federalism.

Adegbemle said shared responsibility would improve accountability and reduce inefficiencies in the power sector.

He noted that states with established electricity markets under the amended Electricity Act may be exempt from the framework.

The Minister of Power, Adebayo Adelabu, through his media aide, Bolaji Tunji, said the ministry supports the initiative.

Tunji described the proposal as a bold and necessary step toward long-term sector stability.

However, the deduction is expected to reduce funds available to subnational governments, forcing states to reassess spending priorities.

Chairman of the Forum of State Commissioners of Power and Energy in Nigeria, Prince Eka Williams, said the forum would study the proposal before taking a position.