By David Akinmola
The Federal Government has announced plans to begin a cost-sharing arrangement with state governments on electricity subsidies from 2026, signalling a major shift in the financing of Nigeria’s power sector and a gradual move away from full centralised subsidy funding.
The decision, according to officials familiar with the policy direction, is aimed at easing mounting fiscal pressures on the Federal Government while encouraging states to take greater responsibility for electricity supply, pricing and efficiency within their jurisdictions.
Under the proposed framework, states are expected to co-fund electricity subsidies based on consumption patterns, tariff structures and distribution performance in their respective areas. The arrangement is also designed to align with recent constitutional and regulatory reforms that decentralised aspects of electricity generation, transmission and distribution.
A senior power sector official said the current subsidy regime, which largely relies on federal resources, has become fiscally unsustainable amid rising generation costs, exchange rate pressures and growing demand. “Electricity consumption happens at the subnational level. It is only logical that states share in both the benefits and the costs,” the official said.
Electricity subsidies have remained a major drain on public finances, particularly following partial tariff adjustments and the retention of support for low-income consumers. While recent reforms introduced service-based tariffs, the government has continued to absorb a significant portion of generation and supply costs to prevent sharp increases in electricity bills.
Analysts say the new approach could accelerate state-led power initiatives, including investments in embedded generation, mini-grids and improved distribution infrastructure. States that choose to subsidise power more aggressively could offer lower tariffs to residents and businesses, while others may prioritise targeted support for vulnerable consumers.
However, the policy has raised concerns about capacity disparities among states. Energy economists warn that poorer states may struggle to fund subsidies without federal support, potentially widening regional inequalities in electricity access and pricing.
“The success of this model will depend on transparency, clear rules and strong coordination between federal and state authorities,” said an energy policy analyst. “If well managed, it could deepen accountability and efficiency. If not, it risks creating uneven outcomes.”
The Federal Government is expected to engage state governments through the National Economic Council (NEC) ahead of implementation, with detailed guidelines on cost-sharing ratios, consumer protection and tariff-setting to be unveiled before the end of 2025.
Officials stressed that the planned transition would be gradual, with safeguards to protect low-income households and small businesses, as Nigeria continues efforts to stabilise the power sector and reduce the long-standing burden of electricity subsidies on public finances.
