Tinubu directs states to share electricity subsidy costs

State governments will now share the financial responsibility for electricity subsidies with the Federal Government, following a directive from President Bola Tinubu.

IDOMA VOICE reports that the funding for the subsidy will be drawn from the Power Assistance Consumers Fund (PCAF), a government-backed pool established to subsidise electricity bills for low-income and vulnerable households, maintain affordability amid rising tariffs, and stabilise the power sector through targeted support instead of blanket subsidies.

Currently, more than 18 states have their own electricity regulatory agencies, while others are preparing to establish theirs. These states include Lagos, Ondo, Osun, Ekiti, Edo, Delta, Bayelsa, Akwa Ibom, Cross River, Abia, Anambra, Imo, Kogi, Niger, Nasarawa, Plateau, Gombe, and Jigawa.

Directive Announced at Budget Workshop

The announcement came from the Director-General of the Budget Office of the Federation, Tanimu Yakubu, during the opening of the 2026 Post-Budget Preparation Workshop on the Government Integrated Financial Management Information System (GIFMIS) in Abuja.

Yakubu explained that states benefiting politically from electricity subsidies must also contribute financially to close the gap created by the subsidy.

Speaking through the Director of Expenditure Social, Mr Yusuf Muhammed, he said: “Mr President has directed that we operationalise a clearer framework to share the cost of electricity across the federation, so the burden is not treated as an open-ended fiscal residual. I mean federal residual.

Let me be direct. If you want a stable power sector, we must pay for the choices we make. When tariffs are held low cost, a gap is created. That gap is a subsidy, and a subsidy is a bill.”

FG Won’t Shoulder Subsidy Alone

Yakubu emphasised that from 2026, electricity subsidy will no longer be the Federal Government’s sole responsibility:

“In 2026, we will stop pretending that this bill can be left to the Federal Government alone, especially where the policy choice or the political benefit is shared across tiers of government.

Mr President directed us to invoke the electricity sector legal framework to make burden-sharing practical and transparent.”*

The new framework aims to make subsidy costs explicit, tracked, and funded, preventing them from re-emerging as arrears, liquidity crises, or hidden market liabilities. Yakubu added:

“This means subsidy costs must be explicit, tracked and funded, so they do not return as arrears, liquidity crisis or hidden liabilities in the market.

It also means that if any tier of government chooses affordability intervention, the responsibility must be clear, agreed and enforceable. This is not punishment. It is an alignment.”

According to him, clear cost-sharing will promote efficiency and targeted protection for vulnerable consumers:

“When everyone carries a fair share of the cost, everyone also has an incentive to support cost-effective, efficiency-targeted protection for the vulnerable, and empower a market that can actually deliver for MDAs.”

States Urged to Reflect Subsidy Costs

Yakubu instructed states and MDAs to transparently include subsidy-related costs in fiscal plans:

“The implication is simple: make subsidies-related costs visible in your planning and submission.

Do not push liabilities into the market as arrears or unfunded commitments. Support transparent, rule-based attribution and financing of affordability decisions.”

He also revealed that President Tinubu directed a review of the Fiscal Responsibility Framework, to make rules more dynamic and enforceable, ensuring the 2026 budget prioritises delivery-ready and finance-ready projects.

 Reactions from Governors and Regulators

The Nigerian Governors’ Forum said it is still reviewing the directive. Yunusa Abdullahi, Director of Media and Communications, stated:

“We are reviewing the context and content of the information. We will not be making further comments on it.”

Similarly, several State Electricity Regulatory Commissions held an emergency meeting to assess the implications. One anonymous commission member said:

“We cannot make our official position known immediately. We are hearing it for the first time and currently meeting to review it.

The government has taken steps in recent times to stimulate the sector by deregulating activities and making states play active roles, but we need to interrogate this decision and understand its implications for the states and the entire power sector.”

Experts Weigh In

Dr Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprises (CPPE), urged states to actively participate in subsidy funding. He compared it to the petrol subsidy era:

“This model is not different from the model we had with the first subsidy. You know the first subsidy, all the states and local governments that had anything to do with FAAC allocation are paying for it because the NNPC which was supposed to be remitting to the federation account was not remitting, so all the states were paying for it.

When the first subsidy stopped, NNPC was able to remit a lot more and the states were getting more revenue, so I believe the same scenario is about to play out with regard to electricity subsidy.”

Yusuf warned that electricity subsidy obligations have been growing rapidly, making it unsustainable for the Federal Government alone:

“The numbers are getting bigger and bigger by the day. The last time we were told that the GENCOs and the gas suppliers were owed about five trillion N.

The Federal Government had to issue a bond to that effect, and that was as at June or September last year.”

He noted the sector’s interconnectivity, adding that pre-election dynamics complicate immediate reform:

“From gas suppliers to generators, transmitters and distributors, this is a strongly linked chain. Once there’s a break in the chain, the electricity system goes down.”

Prof Wumi Iledare of the FUPRE Energy Business School called the policy a major fiscal and political shift:

“This is a big fiscal and political shift. It’s basically saying electricity subsidy is no longer just a federal burden; states must now share the cost.

If states must co-pay, they will likely push faster toward realistic tariffs, targeted subsidies and local power investments.

This could either deepen the crisis or finally force more discipline and accountability in electricity financing. The outcome depends on whether the framework is transparent and rules-based, not political bargaining.”

Legal Concerns and FAAC Deductions

Some legal experts, including Bode Fadipe, questioned whether the Federal Government can compel states to pay:

“That is a serious issue when you are asking states to take on part of the subsidy. What will be the basis? Will it be based on what states consume or what their indigenes consume? It is hazy to start conjecturing how states will handle this when it is not their facility that conveys the energy we are talking about.”

Electricity market experts, like Lanre Elatuyi, suggested direct FAAC deductions could enforce contributions but cautioned that this might trigger disputes.

“States will need accurate data on the volume of electricity consumed within their jurisdictions.

The level of debt in the power sector has shown that the Federal Government alone can no longer shoulder the burden.

States can decide the percentage of subsidy they are willing to pay, especially since the Electricity Act empowers them to establish and regulate their own electricity markets,” he said.