Electricity Tariffs: FG, States to Share Subsidy Cost From 2026

The Federal Government says it will stop carrying electricity subsidy costs alone from 2026. Instead, subsidy funding will be shared across the three tiers of government: federal, state, and local. 

The goal is to make affordability support clear, traceable, and properly funded, rather than leaving the gap to build up quietly inside the power market as unpaid obligations.

The position was presented by Tanimu Yakubu, Director General of the Budget Office of the Federation, at a workshop in Abuja on February 2, 2026.

“A subsidy is a bill” and somebody must settle it

Yakubu’s message was straightforward. If electricity tariffs are kept below the real cost of supplying power, the difference does not disappear. It becomes a subsidy, and that subsidy becomes a bill that must be paid by someone. 

According to him, the President’s direction is that subsidy costs should be explicit, practical, and transparent, rather than hidden as arrears or allowed to show up later as a liquidity crisis.

This framing matters because it treats subsidies as an actual budget item, not a vague promise. Once it is treated like a bill, it becomes harder to ignore, delay, or push into the future.

This policy lands in a sector already strained by a long-running cash problem. Power-generating companies are reported to be owed over ₦4 trillion, a level of unpaid obligations that has repeatedly raised concerns about supply stability and investment confidence.

To relieve the pressure, government has been linked with debt cleanup measures, including a reported ₦4 trillion bond initiative discussed after engagement with generating companies, and a reported ₦501 billion inaugural power sector bond under the Presidential Power Sector Debt Reduction Programme, described as fully subscribed.

The underlying point is simple: if the market keeps selling below cost without a clear, funded plan to cover the gap, the unpaid amount grows, and the system keeps choking on IOUs.

What changes for tariffs and regulation

Consumers often focus only on whether tariffs rise or fall, but the bigger issue is how the gap is addressed. If subsidy costs are now shared, the conversation shifts from “keep tariffs low” to “who is paying for the difference, and how will it be financed without fresh arrears.”

In practice, this could push for a more structured approach to affordability, where any decision to hold prices below cost must be accompanied by an agreed funding plan, rather than leaving market participants to bear the shortfall.

What it means for state and local budgets

For states, the policy creates a direct trade-off. If a state wants to keep electricity more affordable for households and small businesses, it may now have to contribute financially to that support. 

The alternative is to push harder for reforms that reduce the need for subsidies in the first place, such as cutting losses, improving collections, expanding metering, and tightening accountability in service delivery so that the cost gap shrinks.

It also changes political incentives. When only the federal government pays, states can enjoy the political benefits of lower tariffs without a direct fiscal hit. Cost sharing is designed to end that imbalance by making affordability choices come with shared responsibility.

What consumers should realistically expect

Most consumers should not expect one dramatic overnight change. The more likely outcome is a slower shift in how subsidies are discussed and applied. You may see tighter debates about who is protected, what level of support is justified, and how to prevent the tariff gap from expanding as demand rises or collections fall.

If cost-sharing is enforced seriously, it can also increase pressure on the system to reduce waste and inefficiencies, because every tier of government contributing money will demand clearer results.