Power Generation Companies Challenge Federal Government's Electricity Subsidy Sharing Proposal
The Federal Government of Nigeria has announced plans to redistribute the financial burden of electricity subsidies across all tiers of government starting from 2026, a move that has sparked significant disagreement within the power sector. While electricity distribution companies have welcomed the initiative as fair and workable, power generation companies have raised serious objections, warning that the policy could exacerbate existing liquidity challenges.
GenCos Dispute Subsidy Existence and Warn of Financial Crisis
Power Generation Companies (GenCos) have strongly criticized the federal government's announcement that it will no longer bear electricity subsidy costs alone. According to Joy Ogaji, Managing Director and Chief Executive Officer of the Association of Power Generation Companies, claims of government subsidy are not supported by budgetary allocations or official documentation. She emphasized that there is no verifiable evidence of an existing electricity subsidy, noting that generation companies have been absorbing revenue shortfalls for more than a decade.
Ogaji revealed alarming financial statistics that highlight the sector's precarious situation. GenCos are reportedly paid less than 35 percent of their monthly invoices, creating what she described as an unsustainable financial environment. She cited current budget figures showing that while the federal government allocated N1.09 trillion to the power sector this year, monthly shortfalls of approximately N200 billion remain unfunded.
The financial challenges facing GenCos have reached critical levels, with outstanding debts owed through the Nigerian Electricity Trading Plc rising to about N6.4 trillion by December 2025. Only a N501 billion bond has been issued to address historical liabilities, leaving a substantial gap in sector financing. Ogaji also disclosed that the Nigerian Electricity Regulatory Commission confirmed there was no official approval or documentation showing formal recognition or funding of subsidies in tariff calculations.
Federal Government's Policy Direction and Rationale
The federal government recently proposed that electricity subsidy payments be deducted directly from statutory allocations shared through the Federation Account Allocation Committee (FAAC). This move could potentially remove up to N3.6 trillion from the federation account between 2026 and 2028, representing a significant shift in how electricity subsidies are managed.
Tanimu Yakubu, Director-General of the Budget Office of the Federation, explained the policy direction during a training and sensitization workshop in Abuja on the 2026 post-budget preparation process. He stated that the initiative followed a directive by President Bola Tinubu to prevent the buildup of hidden liabilities in the electricity market and ensure that all subsidy-related costs are clearly identified and funded.
Yakubu emphasized that keeping electricity tariffs below cost creates a financial gap that must be addressed, adding that the Federal Government would no longer carry this responsibility alone when policy benefits cut across all tiers of government. Notably, the 2026 budget proposal currently before the National Assembly makes no provision for monthly electricity subsidies, despite persistent tariff shortfalls in the sector.
Distribution Companies Support the Plan
In contrast to GenCos' objections, electricity distribution companies (DisCos) have welcomed the federal government's plan as fair and achievable. Sunday Oduntan, Chief Executive Officer of the Association of Nigerian Electricity Distributors, expressed support for the initiative, describing it as a workable solution to the sector's financial challenges.
Oduntan suggested that the government could implement the policy through deductions at source from states' FAAC allocations, acknowledging that while states' capacity to absorb the costs may differ, the approach remains feasible. However, he cautioned against a blanket removal of subsidies, advocating instead for targeted support for vulnerable electricity consumers based on reliable data.
Background and Sector Reforms
The policy forms part of the current electricity reforms being implemented by the federal government, which aim to achieve total decentralization of the electricity market and regulation in Nigeria. Experts have warned that unresolved tariff shortfalls could deepen sector debts if not formally funded, highlighting the urgency of addressing the financial challenges facing the power industry.
The federal government recently raised N501 billion through bonds under the Presidential Power Sector Debt Reduction Programme to address historic debts in the electricity sector. This bond achieved full subscription and represents the most concrete step yet by the Bola Tinubu administration to resolve payment arrears that have crippled electricity generation for more than a decade. The settlement programme could potentially improve electricity service delivery for over 12 million customers across Nigeria.
As the debate continues between different stakeholders in the power sector, the implementation of the subsidy sharing policy will likely face significant scrutiny and discussion in the coming months, with implications for electricity consumers, government finances, and the overall stability of Nigeria's power infrastructure.
