The Federal Government has directed that state governments will share the cost of electricity subsidies with the federal government, officials said in Abuja. The directive is intended to ensure power subsidy costs are made explicit, tracked and funded across tiers of government.
Electricity subsidies arise where tariffs are held below the cost of supply, creating a funding gap that governments have historically subsidised to make power more affordable.
The Federal Government has shouldered these costs under successive budgets, but concerns over hidden liabilities and recurring liquidity issues in the power sector have led to changes in how subsidy costs are accounted for.
The directive forms part of fiscal procedures for the 2026 budget process, which require ministries, departments and agencies to disclose how subsidy costs will be shared among the federal, state and local governments, according to officials addressing a budget preparation workshop.
Director‑General of the Budget Office of the Federation, Tanimu Yakubu, said the President has instructed that the electricity sector’s legal framework be invoked so the burden of subsidies is shared transparently and practically across federal, state and local governments.
He said subsidy liabilities should be tracked and funded to avoid their recurrence as arrears or hidden costs.
Yakubu said state governments that benefit politically from electricity subsidy arrangements must also contribute to addressing the funding gap created by the subsidy, rather than leaving the financial burden entirely to the federal government.
He explained that making subsidy costs explicit and funded will encourage cost‑effective and efficient support for vulnerable consumers.
According to officials, the Power Assistance Consumers Fund (PCAF), a government‑backed financial pool designed to subsidise electricity bills for low‑income and vulnerable households, will be part of the funding mechanism for these shared subsidy payments.
The directive was communicated at the opening of a training and sensitisation workshop for ministries, departments and agencies on the 2026 post‑budget preparation process in Abuja.
The requirement for state governments to share in electricity subsidy costs reflects a change in how the Federal Government frames fiscal responsibility in the power sector.
Transparent, tracked contributions by multiple tiers of government could reduce recurrence of unfunded liabilities and improve fiscal discipline in the sector.
Officials say clearer cost‑sharing can help stabilise the power market by making subsidy obligations visible in budget planning and avoiding hidden or unpaid obligations that can lead to liquidity challenges.
The involvement of states in funding subsidy costs may also align with broader efforts to strengthen regulatory and financial frameworks in the electricity sector, potentially influencing how affordability interventions are implemented.
The Federal Government has directed that state governments participate in sharing electricity subsidy payments with the federal government under a framework designed to make subsidy costs explicit, transparent, and funded in the 2026 budget.
Officials say this approach aims to strengthen fiscal discipline and address recurring liabilities in the power sector.
