The Federal Government’s plan to stop bearing electricity subsidy costs alone and instead spread the burden across the federal, state, and local governments from 2026 has opened a fresh fault line in Nigeria’s power sector, with generation companies rejecting the very existence of a subsidy, while distribution companies endorse the policy as fair and workable.
Findings showed that the Federal Government is planning to deduct electricity subsidy payments directly from statutory allocations shared through the Federation Account Allocation Committee, a move that could see as much as N3.6tn removed from the federation account in 2026, 2027, and 2028, as reported by The PUNCH on Wednesday.
While electricity distribution companies backed the plan to share the subsidy burden between the Federal Government and the subnationals, power generation companies questioned the Federal Government’s long-held subsidy narrative, warning that extending it to states and local governments could deepen the sector’s liquidity crisis.
The PUNCH reported on Monday that the new policy direction was disclosed by the Director-General of the Budget Office of the Federation, Tanimu Yakubu, in Abuja during a training and sensitisation workshop for ministries, departments, and agencies on the 2026 post-budget preparation process using the Government Integrated Financial Management Information System Budget Preparation Sub-System.
Yakubu said the move followed a directive by President Bola Tinubu to stop the accumulation of hidden liabilities in the electricity market and ensure that subsidy-related costs were transparently recognised and funded.
The newspaper had earlier reported that the 2026 budget proposal currently before the National Assembly made no provisions for monthly electricity subsidies, despite the continued tariff shortfalls in the market.
Speaking at the event, Yakubu said, “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.”
Explaining why the Federal Government was moving away from shouldering the burden alone, Yakubu said the current approach had created recurring crises across the electricity value chain.
He said, “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.”
However, power generation companies sharply criticised the policy, insisting that the premise of an existing electricity subsidy was flawed and unsupported by budgetary or legal evidence.
The Managing Director and Chief Executive Officer of the Association of Power Generation Companies, Joy Ogaji, said the conversation around subsidy was misleading and unsupported by any formal documentation or fiscal provision.
“When you say subsidy, where is the evidence to show that there is a subsidy in the sector other than the fact that GenCos are consistently paid less than 35 per cent of their invoice monthly? Does subsidy exist in the power sector, or is it just lip service?” she asked.
Ogaji said that for investors, the subsidy could only be established through verifiable fiscal commitments, not assumptions.
“For any investor in the power sector, the only way you can see that the government is subsidising the sector is to look at the budget. Is the subsidy in the air? Is it a smokescreen? Somebody has to see it somewhere, or is it just a political pronouncement that is not cash-backed?” she queried.
According to her, the long-standing claim that the government subsidises electricity masks the reality that generation companies have been funding the shortfall for more than a decade.
“The story has been going around that the government is subsidising electricity. The true story is that generation companies are the ones subsidising the sector. From the beginning, 2013 until the present, they’ve not received 100 per cent of their invoiced amount. So, when we actually say subsidy, who is paying the subsidy? Where is it recorded?” she said.
Ogaji pointed to budget figures to underline her argument, noting that government allocations fell far short of market needs and had translated into mounting debts owed to GenCos.
“For example, this year, the government only provided N1.09tn for the power sector, and there’s a monthly shortfall of N200bn that is not budgeted for. You need to analyse the budget side by side with how much the shortfall is every month,” she said.
She added, “As of December 2025, the Federal Government debt to the GenCos via the Nigeria Electricity Trading Plc is already N6.4tn. You also need to look at how much of that has been provided for. Just a N501bn bond.”
According to her, the bond was structured to run for seven years and focused largely on historical debts without addressing ongoing shortfalls. “This bond is earmarked to run for seven years with a focus on the N4tn without dealing with the haemorrhaging ones,” Ogaji said.
She further revealed that she had sought clarification from the Nigerian Electricity Regulatory Commission on whether any official approval existed for the assumed subsidy embedded in tariff calculations.
“I spoke with NERC. I asked them if they received any letter from the Federal Government, whether from the Ministry of Finance, the Debt Management Office, or the Presidency, any document, or any minutes of meetings where it is recorded that the Federal Government approved that there is a subsidy in the market. NERC said no, there is no such official document that shows that there is a subsidy,” Ogaji noted.
The APGC boss also questioned the basis upon which DisCos were allowed to remit only a fraction of GenCos’ invoices. “The GenCos will invoice N100,000, and you will tell the DisCos to pay only N35,000, so the government will complete the difference. Do you have any documents to show that the government promised to pay the difference? Is there any document?” she asked.
She said NERC explained that the assumption was that the government would automatically cover the gap because tariffs were not allowed to rise, an arrangement she said was never funded. “This is the genesis of the debt that has accumulated to over N6tn on GenCos’ books because it is not provided for,” Ogaji explained.
Questioning the new policy, she asked, “Now what is being shared between the Federal Government and the states? Something that is not provided for?”
She warned that extending the same assumption to states and local governments could worsen the crisis in the sector. “The same way the Federal Government has been living in denial when it comes to the 65 per cent assumed in the tariff is the same way the states and the local governments will handle this. So, there are worse days in the power sector coming,” she warned.
Ogaji said debts would continue to rise unless the shortfall was formally recognised and funded. “Until we recognise it and make provision for it either in the budget or through any other means of government borrowing and close that gap, it will keep widening,” she added.
In contrast, the Chief Executive Officer of the Association of Nigerian Electricity Distributors, Sunday Oduntan, expressed support for the Federal Government’s plan, saying it could bring fairness and structure to the system.
Oduntan said the Federal Government would likely find a practical mechanism for implementation, possibly through deductions at source from states’ monthly FAAC allocations. While acknowledging that the capacity of states to absorb the burden would vary, he maintained that the approach was feasible.
“I align with the policy, and I believe the Federal Government would have a way of working it out. You know all the states get monthly allocations; maybe they will be deducting at source. As to whether the states can bear the burden, that’s for the states to answer. But I know that it can be done,” he said.
Describing the move as fair, Oduntan added, “What the Federal Government is trying to do is a fair game; it’s a good one.”
On calls for subsidy removal, he argued against a blanket approach, insisting that subsidies should be targeted at vulnerable customers rather than applied universally.
“I know some customers should be subsidised. But you can only do a proper subsidy when there is proper data. I don’t support a universal subsidy. I support subsidy for the needy, but we need data to identify those in need so that you subsidise only them,” Oduntan said.
