The Federal Government has proposed a total deduction of N3.6 trillion from the Federation Account to fund electricity subsidies between 2026 and 2028, in a move aimed at addressing the growing financial strain in Nigeria’s power sector.
The proposal is contained in the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper for 2026–2028, analysed on Tuesday. The plan represents a significant policy shift, as it seeks to distribute the cost of electricity subsidies across the federal, state and local governments, rather than leaving the burden solely on the Federal Government.
Under the proposal, electricity subsidies are pegged at N1.2 trillion annually for each of the three years. Table 6.2 of the MTEF document, which details “Other FAAC Deductions” under the Federation Account Revenue – Main Pool, VAT and Stamp Duty, shows that the deductions will be made directly from the Federation Account before revenue is shared among the three tiers of government.
The government said the approach is designed to confront the rapidly mounting electricity subsidy debt, which has constrained liquidity across the power sector and worsened systemic inefficiencies. By explicitly accounting for subsidy obligations within the FAAC framework, the Federal Government aims to strengthen fiscal transparency and prevent the accumulation of hidden liabilities.
Power sector analysts note that unpaid subsidy obligations have long undermined the financial health of electricity generation and distribution companies, leading to persistent liquidity challenges and affecting service delivery. The proposed deductions are therefore seen as an attempt to stabilise the sector while ensuring that subsidy costs are more sustainably managed.
The projection to maintain the subsidy level at N1.2 trillion annually through 2028 signals the government’s intention to balance sector stability with fiscal discipline, amid broader concerns over Nigeria’s public finances and the need to avoid a deepening fiscal crisis.
