FG to deduct N3.6trn from FAAC to fund power subsidies

The Federal Government has proposed deducting N3.6tn from the Federation Account between 2026 and 2028 to finance electricity subsidies, shifting the cost burden from the centre to all tiers of government.

According to the Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF-FSP) revealed that N1.2trn will be deducted annually for three years and transferred directly to the Nigerian Bulk Electricity Trading Plc (NBET) before revenues are shared among the Federal Government, states, and local governments.

The move is aimed at addressing mounting subsidy debts in the power sector, improving liquidity, and making subsidy payments more transparent and predictable.

Budget Office Director-General, Tanimu Yakubu, said the current practice of the Federal Government solely bearing subsidy costs is unsustainable, stressing that any decision to keep tariffs below cost creates a funding gap that must be explicitly paid for.

“If we want a stable power sector, we must pay for the choices we make. Subsidy costs must be tracked and funded so they don’t return as arrears or hidden liabilities,” he said.

Under the arrangement, the subsidy will be treated as a first-line deduction from FAAC, meaning states and local governments will receive lower monthly allocations.

Energy policy expert Habu Sadeik said the approach would ensure predictable funding and prevent the accumulation of unpaid debts, which are projected to hit N6.5tn by the end of 2025. He noted that unlike previous years when subsidies were covered mainly by federal budgets, the new plan shares responsibility across the federation.

Power sector advocate Adetayo Adegbemle described the proposal as consistent with federalism, saying it would improve accountability and encourage states to manage electricity demand more efficiently, though he maintained that subsidies should eventually be phased out.

The Ministry of Power backed the initiative, calling it a step toward sustainability.

With projected FAAC revenue of N41.06tn in 2026, the upfront deduction is expected to reduce funds available to states and councils, potentially affecting spending on infrastructure, education, and healthcare.

State energy commissioners said they would study the policy before taking an official position.