State governments are now to bear the cost of electricity subsidy, along with the Federal Government, President Bola Tinubu, has directed.
Vanguard gathered that funding for payment of the subsidy will now come from Power Assistance Consumers Fund, PCAF.
PCAF is a government-backed financial pool designed to subsidise electricity bills for low-income and vulnerable households to ensure affordability in the face of rising tariffs, thus improving energy access while stabilising the electricity sector by funding targeted support, instead of universal subsidies.
More than 18 states are currently operating their regulatory agencies, with others waiting in the wings to do same.
The states include Lagos, Ondo, Osun, Ekiti, Edo, Delta, Bayelsa, Akwa Ibom, Cross River, Abia, Anambra, Imo, Kogi, Niger, Nasarawa, Plateau, Gombe and Jigawa.
Director-General of the Budget Office of the Federation, BoF, Mr. Tanimu Yakubu, who disclosed this at the opening of the 2026 Post-Budget Preparation using Government Integrated Financial Management System, GIFMIS, workshop, in Abuja, yesterday, said state governments that enjoyed the political benefits of electricity subsidy must also share in filling the gap created by subsidy and must not be left to the Federal Government alone.
He said in an address read on his behalf by the Director of Expenditure Social, Mr. Yusuf Muhammed: “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.
“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.
“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.
“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 market that can actually deliver for MDAs.
“The implication is simple, makes subsidies-related cost visible in your planning and submission. Do not push liabilities into the market as arrears or unfunded commitment. Support transparent rule-based attribution and financing of affordability decisions.”
The D-G also said the President directed the BoF and the MDAs to enhance the dynamism of fiscal rules through a review of the Fiscal Responsibility Framework.
“Fiscal rules are not a slogan, they are the guardrails of government. Without guardrails, spending becomes impulsive, debt becomes casual, and the budget becomes a statement of intent, rather than a tool of delivery.
“But rules must also be smart. They must respond to volatility without collapsing under pressure. That is why the 2026 direction is not to abandon rules, but to modernise them, so they work in today’s Nigeria.
“Mr. President’s directive is to review the Fiscal Responsibility Framework to make it more dynamic and more enforceable. That means clearer fiscal anchors, better-defined escape clauses for genuine shocks, and a credible path back to compliance when those clauses are used.
“It means stronger reporting, tighter discipline around contingent liabilities, and a firmer link between the medium-term framework and annual appropriations.
‘’For MDAs, this changes the conversation. You will not only be asked what you want to spend. You will be asked how it fits the fiscal rules, how it affects sustainability, and what measurable results it will deliver,’’ he said.
According to the D-G, in 2026, capital proposals must be delivery-ready and where appropriate, they must be finance-ready.
He said: “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, working hospitals.
“So in 2026, we are moving decisively from naming projects to financing and delivering projects. This is where project financing becomes central. It is not a buzzword, it is a discipline. It means projects must be properly scoped, costed, sequenced and packaged to attract the right mix of funding—budget, PPPs, blended finance, guarantees, and counterpart resources where relevant.
“It means readiness: designs, approvals, procurement strategy, and an implementation time-table. It means bankability: a credible revenue or service-payment logic, risk allocation, and clear governance.
“It means prioritisation: fewer projects, better funded, better delivered. If we do this, the budget becomes a pipeline of completion, not a catalogue of unfinished work. That is the project-financing mindset Mr. President wants embedded across MDAs in 2026.”
NGF, state electricity regulatory commissions review decision
Reacting to the development yesterday, the Director of Media and Communications, Nigerian Governors’ Forum, NGF, Yunusa Abdullahi, said: ‘’We are reviewing the context and content of the information. We will not be making further comments on it.’’
Similarly, the State Electricity Regulatory Commissions, SERCs, in Lagos, Imo, Enugu, Ekiti, Oyo, Ondo, Edo, Niger, and Anambra yesterday held an emergency virtual meeting to review the situation and decide on appropriate steps to take.
A member, who pleaded to be anonymous, said: “We cannot make our official position known immediately. We are hearing it for the first time and currently meeting to review it. We need to understand the issue before responding or reacting to it.
“The government has taken appropriate steps in recent times to stimulate the development of the sector by deregulating activities, making the states to play active roles. But we need to interrogate the current decision and understand the implications on not only the states but also the entire power sector.”
States should pay subsidy as active partners — CPPE
On his part, Dr. Muda Yusuf, Chief executive officer, Centre for the Promotion of Private Enterprises, CPPE, said states should be ready to play active roles, including bearing subsidy burden as active stakeholders in the sector.
He said: “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.
“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 naira. The Federal Government had to issue a bond to that effect, that’s what we are seeing here and that was as at June or September last year.
Between then and now the figures will have gone up. So a subsidy regime that’s obviously difficult for the Federal Government alone to continue to carry is one that is not so sustainable but it’s not politically feasible to tamper with that subsidy regime as we speak.
“This is because the citizens are yet to recover from earlier reforms and the implications on their real income and on their welfare.
“We are in a pre-election year, so this is another cross the government will have to carry and they are closely connected from those who are supplying gas to those who are generating, down to those who are transmitting, as well as those distributing.
“However, it’s a sector that needs more rigorous reform, more fundamental reforms. But I am not sure those reforms can move as quickly as we desire, particularly at a time like this.
“This is a major policy concern. But for me, I think that decision is almost inevitable, given the rate at which electricity subsidy has been growing, because all the players have been talking about cost-reflective tariff and all of that, but I don’t think that is feasible at this time. That is a challenge.”
This is a big fiscal, political shift — Prof Iledare
Similarly, FUPRE Energy Business School and Executive Director, Emmanuel Egbogah Foundation, Prof. Wumi Iledare, said: “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.
“That fits the new electricity reforms where states have more power-sector authority, but it raises tough questions.
“How will the sharing formula work? Poorer states can’t carry the same load as richer ones. Can states even afford this without creating new debts? And what incentives does this create?
“This is a strongly linked and connected chain. And once there’s a break in the chain, electricity system goes down.
“If states must co-pay, they will likely push faster toward realistic tariffs, targeted subsidies, and local power investments.
“So 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.”
Experts doubt FG’s power to make states pay electricity subsidies
Also speaking on the issue, a legal practitioner and Lead Consultant at Sage Consulting on Power Sector Advocacy and Advisory, Mr. Bode Fadipe, expressed reservations about how the policy will be enforced, noting that electricity subsidy remained a federal decision.
Fadipe queried whether the Federal Government has the constitutional authority to dictate how states should deploy their financial resources.
He said: “That is a serious issue when you are asking states to take on part of the subsidy or contribute to electricity subsidy payments. What will be the basis? Will it be based on what states consume or what their indigenes consume?
“It is a little hazy to start conjecturing how states will handle this when it is not their facility that conveys the energy we are talking about. It is unclear how state governments can now assume such responsibility.
“Perhaps when we see the policy and the implementation guidelines, it will become clearer what direction the Federal Government intends to take.
“But does the Federal Government have the right to tell states how to spend their money? These are fundamental issues that need to be addressed.”
Reflecting on the controversy surrounding attempts by Enugu Electricity Regulatory Commission, EERC, to set electricity tariffs last year, Fadipe noted that the Federal Government still controls the wholesale electricity market.
He said: “The wholesale market remains a federal government market. When electricity gets to the distribution level and the question arises, how much did State A or State B consume, or how much did the Federal Capital Territory consume, and the decision is taken that states should pay 10 or 20 per cent, it would have to be voluntary.
“It cannot be by federal directive. What the Federal Government is concerned about at the wholesale level is that its money is recovered. Who pays what should be immaterial to it.
“The Enugu issue is very clear. Enugu could not ask for a subsidy on a product it does not control. If it wants to do so, then it must be prepared to pay the differential arising from that decision.”
An electricity market expert, Lanre Elatuyi, said the Federal Government can only achieve such a policy through direct deductions from states’ allocations via the Federation Account Allocation Committee, FAAC.
However, Elatuyi warned that this approach could lead to conflict, as states will need accurate data on the volume of electricity consumed within their jurisdictions.
“FAAC deductions are one way of implementing this, and I believe it is fair for states to also contribute to electricity subsidy payments. The level of debt in the power sector has shown that the Federal Government alone can no longer shoulder the subsidy 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 added.
(Vanguard)
