Federal Government Directs States to Share Electricity Subsidy Burden
The Federal Government has issued a directive requiring state governments to begin sharing the financial burden of electricity subsidy alongside the federal administration. This significant policy shift aims to create a more sustainable framework for power sector support.
New Funding Mechanism Through PCAF
Payments for the electricity subsidy will now be channeled through the Power Assistance Consumers Fund (PCAF), a government-backed financial pool specifically created to subsidize electricity bills for low-income and vulnerable consumers across Nigeria. This fund represents a strategic move away from blanket subsidies toward more targeted support mechanisms.
The PCAF initiative is designed to achieve multiple objectives: improving electricity affordability amid rising tariffs, stabilizing the nation's power sector, and creating a more transparent subsidy system. This approach marks a departure from previous subsidy models that lacked clear funding mechanisms.
State Regulatory Infrastructure Already in Place
More than eighteen states have already established operational electricity regulatory agencies, with additional states preparing to follow suit. The states currently operating these agencies include:
- Lagos
- Ondo
- Osun
- Ekiti
- Edo
- Delta
- Bayelsa
- Akwa Ibom
- Cross River
- Abia
- Anambra
- Imo
- Kogi
- Niger
- Nasarawa
- Plateau
- Gombe
- Jigawa
This existing regulatory infrastructure provides a foundation for implementing the new subsidy-sharing arrangement across different tiers of government.
Official Announcement at Budget Workshop
The Director-General of the Budget Office of the Federation, Mr. Tanimu Yakubu, disclosed this policy direction in Abuja during the opening of the 2026 Post-Budget Preparation workshop on the Government Integrated Financial Management Information System (GIFMIS). His address was delivered on his behalf by the Director of Expenditure Social, Mr. Yusuf Muhammed.
Yakubu emphasized that states benefiting from the political advantages of electricity subsidy must now contribute financially to cover the policy gap. "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," he stated.
The Budget Office Director-General elaborated on the economic rationale behind this decision: "If you want a stable power sector, we must pay for the choices we make. When tariffs are held low, a gap is created. That gap is a subsidy, and a subsidy is a bill."
Ending Federal-Only Subsidy Responsibility
Yakubu announced a definitive policy shift for 2026: "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."
According to his explanation, President Bola Tinubu has ordered the activation of the electricity sector's legal framework to ensure practical and transparent implementation of subsidy burden-sharing. "This means subsidy costs must be explicit, tracked and funded, so they do not return as arrears, liquidity crises or hidden liabilities in the market," Yakubu emphasized.
He further clarified 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."
Warning to Government Agencies
The Director-General issued a stern warning to Ministries, Departments and Agencies (MDAs) regarding their financial planning: "The implication is simple: make subsidy-related costs visible in your planning and submissions. Do not push liabilities into the market as arrears or unfunded commitments."
This directive represents a significant change in how government entities must account for subsidy-related expenditures in their budgetary processes.
Broader Fiscal Reforms Underway
Yakubu also disclosed that President Tinubu has directed a comprehensive review of Nigeria's Fiscal Responsibility Framework to make fiscal rules more dynamic and enforceable. "Fiscal rules are not a slogan; they are the guardrails of government," he stated. "Without guardrails, spending becomes impulsive, debt becomes casual, and the budget becomes a statement of intent rather than a tool of delivery."
The Budget Office Director emphasized that capital projects in 2026 must be delivery-ready and properly financed. "A long list of projects is not a development strategy. It is often a map of disappointment. What citizens feel is delivery, completed roads, reliable power, functional schools and working hospitals," he remarked.
State Governors' Response
Reacting to this development, the Director of Media and Communications of the Nigerian Governors' Forum, Mr. Yunusa Abdullahi, stated: "We are reviewing the context and content of the information. We will not be making further comments on it."
This cautious response indicates that state governments are carefully examining the implications of this new directive before formulating their official positions.
