The Federal Government plans to deduct N3.6 trillion from the Federation Account to fund electricity subsidies over a three‑year period, according to documents analysed from the Medium‑Term Expenditure Framework and Fiscal Strategy Paper, officials said.
Under the current arrangement, the cost of electricity subsidies has historically been absorbed through federal budgetary allocations. Electricity subsidy obligations arise when regulated tariffs remain below the cost of supply, creating a financial gap that must be funded to maintain stability in the power market.
The N3.6 trillion projection reflects planned annual deductions of N1.2 trillion for each of three years, beginning with the 2026 fiscal framework. These deductions will be made directly from the Federation Account before statutory revenue sharing among the federal, state and local governments.
Documents from the Medium‑Term Expenditure Framework and Fiscal Strategy Paper show that “Transfer to NBET (Electricity Subsidy)” is projected at N1.2 trillion in each of the 2026, 2027 and 2028 budget cycles.
The figure is categorised as an “Other FAAC Deduction” from gross Federation Account revenue prior to distribution.
The planned dedications are intended to fund transfers to the Nigerian Bulk Electricity Trading Plc (NBET), which purchases electricity from generation companies and supplies distribution companies at regulated tariffs.
The gap between those tariffs and the actual cost of supply forms the subsidy obligation.
Director‑General of the Budget Office of the Federation, Tanimu Yakubu, said that making subsidy costs explicit and tracked will help avoid the accumulation of hidden liabilities and improve fiscal transparency.
He said the approach reflects a directive by the President for all tiers of government to share responsibility for electricity subsidy costs.
By deducting the N1.2 trillion annually at source, the federal government aims to ensure subsidy obligations are funded in a clear and predictable manner rather than accruing as unfunded liabilities.
The deduction mechanism will reduce the amount of revenue available for distribution to subnational governments, as the N1.2 trillion will be removed from gross Federation Account revenue before allocations are calculated.
This change means that states and local governments will indirectly participate in funding electricity subsidy costs.
Officials say embedding the subsidy as a first‑line deduction is a shift toward fiscal discipline by requiring all tiers of government to account for subsidy obligations transparently.
Analysts have noted that previous energy sector debts, partly driven by subsidy shortfalls, have contributed to rising liabilities in the Nigerian Electricity Supply Industry.
The adjustment to the Federation Account allocation process is part of broader efforts to strengthen the financial foundation of the power sector and reduce the risk of hidden fiscal obligations reemerging in future budget cycles.
