State governments will begin sharing the cost of electricity subsidies with the Federal Government from 2026 fiscal year, following a new directive approved by President Bola Tinubu.
Under the plan, subsidy funding will be drawn partly from the Power Assistance Consumers Fund, a targeted scheme designed to protect low-income households rather than sustain blanket tariff support.
The Federal Government said the shift ends the long-standing practice of Abuja carrying the subsidy burden alone, especially as several states now regulate their own electricity markets.
Director-General of the Budget Office of the Federation, Tanimu Yakubu, said the new approach would make subsidy costs explicit and enforceable across all tiers of government.
“If electricity tariffs are held below cost, someone must pay the difference,” Yakubu said. “From 2026, that responsibility will no longer sit with the Federal Government alone.”
According to him, the framework will require states to clearly reflect subsidy-related costs in their budgets to prevent hidden debts and market distortions.
He added that shared responsibility would encourage efficiency and protect vulnerable consumers through targeted interventions rather than broad subsidies.
More than 18 states, including Lagos, Edo, Delta, Anambra, Niger and Plateau, already operate or are preparing to run independent electricity regulatory agencies.
Reactions from state governments were cautious, with the Nigerian Governors’ Forum confirming it was still reviewing the policy details.
Energy policy analysts say the decision reflects growing pressure on public finances as electricity subsidy obligations continue to rise.
Dr Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprises, described the move as unavoidable.
“The subsidy bill is expanding faster than federal revenues can sustain,” he said. “Cost-sharing is inevitable if the power sector is to remain functional.”
However, legal and energy experts warned that implementation could trigger disputes, particularly if deductions are made directly from states’ federal allocations.
“The idea may be sound, but enforcement must be transparent and consensual,” energy consultant Lanre Elatuyi said. “Otherwise, it risks conflict.”
The Federal Government insists the policy aligns with ongoing power sector reforms and is aimed at restoring financial discipline while keeping electricity affordable.