States and councils to co-fund power sector liabilities
In a major policy shift, the Federal Government has announced that State Governments and Local Government Councils will now be required to share the burden of electricity subsidy payments.
This development was disclosed on Tuesday, February 3, 2026, by the Director-General of the Budget Office of the Federation, Tanimu Yakubu, during a meeting with various Ministries, Departments, and Agencies (MDAs) in Abuja. Yakubu noted that the previous model, where the central government solely bore the multi-trillion naira costs, is no longer sustainable under the current “Renewed Hope” fiscal framework.
Between September 2024 and October 2025, the Federal Government reportedly spent a staggering N1.98 trillion on electricity subsidies to keep tariffs below market rates. The Budget Office chief emphasized that these “hidden liabilities” have often led to liquidity crises within the power market, affecting the entire value chain from generation to distribution. By decentralizing the subsidy responsibility, the government aims to ensure that all levels of the “National” administration take ownership of the energy choices made for their respective constituents.
The new directive mandates that any state or council that chooses to maintain a specific tariff cap for its residents must be ready to fund the resulting “gap” from its own budget. Yakubu warned MDAs against pushing unpaid electricity obligations into the market, stating that such debts eventually cripple the operations of DisCos and GenCos. This “National” reform is intended to create a more transparent and cost-reflective power sector that can finally deliver stable electricity to Nigerian homes and industries.
Encouraging efficiency through shared fiscal burden
The “National” move is expected to incentivize states to support efficiency and protect vulnerable consumers more effectively. When every tier of government carries a fair share of the cost, they are more likely to push for a power market that actually delivers results rather than just accumulating debt. Yakubu explained that the goal is to prevent the accumulation of “arrears” that have historically acted as a “clog in the wheel” of sector growth.
For the 2026 budget cycle, all subsidy-related costs must be explicitly tracked and funded to avoid future financial shocks. The Federal Government is also focusing on leveraging bilateral funding and private investment to expand energy access to underserved communities, schools, and hospitals. This “National” strategy aligns with the broader goal of completing ongoing infrastructure projects rather than initiating a long list of new ones that may never materialize.
Transition to cost-reflective energy markets
The transition to a shared subsidy model marks a significant step toward a fully cost-reflective electricity market in Nigeria. President Bola Tinubu’s administration has consistently argued that maintaining artificially low prices without proper funding is a recipe for system collapse. By bringing states into the financial loop, the government hopes to foster a culture of accountability where the cost of power is met by those who benefit from it.
As February 2026 progresses, states will need to recalibrate their internal budgets to accommodate these potential “National” liabilities. Some analysts suggest this could lead to a more competitive energy landscape, with states investing in their own independent power projects to lower costs for their citizens. Ultimately, the “Sanctity” of the power sector depends on a sustainable funding mechanism that balances consumer protection with the reality of market costs.
