Electricity tariffs may soon rise as the federal government signals plans to end its long-standing practice of bearing the cost of power subsidies, a move that could fundamentally reshape Nigeria’s electricity pricing framework.
Strong indications of this policy shift emerged on Monday from remarks by the Director-General of the Budget Office of the Federation, Tanimu Yakubu, who declared that the Federal Government would no longer continue to shoulder electricity subsidy obligations alone, warning that the current arrangement is fiscally unsustainable.
Nigeria’s electricity subsidy has long propped up affordable power for consumers, but it has created massive fiscal burdens through chronic underfunding and accumulating debts to power firms.
The federal government has subsidised electricity since the pre-privatisation era under the National Electric Power Authority (NEPA), later the Power Holding Company of Nigeria (PHCN). Tariffs were kept artificially low—often below 30% of true costs—to shield households and businesses from high generation expenses driven by gas shortages, transmission losses, and currency volatility.
Post-2013 privatisation into generation (GenCos) and distribution companies (DisCos), the Nigerian Bulk Electricity Trader (NBET) bridges the gap between cost-reflective rates and approved tariffs, with the government funding shortfalls.
Unpaid subsidies have morphed into trillions of naira in arrears: N1.94 trillion by the end of 2024, N1.98 trillion over the 12 months to late 2025, and monthly outflows hitting N200 billion by early 2026. These debts—owed via NBET to GenCos and DisCos—stem from frozen tariffs since late 2022 amid naira devaluation and gas price hikes, crowding out infrastructure investment and fuelling grid collapses. Q1 2025 alone saw N536 billion spent, covering 59 per cent of NBET bills.
In 2024, the federal government introduced Partial Band A tariff hikes to cut subsidies by 35 per cent for heavy users, yet overall obligations ballooned to N762 billion in early 2025 due to broader shortfalls. President Tinubu’s administration targets cost recovery while pledging protections for vulnerable groups, shifting from blanket to targeted aid amid 2026 budget pressures.
Speaking at the 2026 Service-Wide Budget Training and Sensitisation Workshop for Ministries, Departments and Agencies (MDAs) in Abuja, Yakubu said subsidy payments in the power sector have become a major drain on public finances, consuming scarce revenues and creating mounting liabilities for the government.
The federal government launched a major bond programme in late 2025 to tackle power sector debts, issuing its first tranche of bonds in January 2026 to settle verified arrears to GenCos and gas suppliers.
Under President Tinubu’s Presidential Power Sector Debt Reduction Programme (PPSDRP), the government authorised up to N4 trillion in bonds to clear legacy debts crippling liquidity and investment. The initiative targets payments for electricity supplied since February 2015, impacting 4,483 MW capacity and 12 million customers.
The debut Series 1 bond raised N501 billion (N300 billion from capital markets via seven-year 17.50% notes; N201 billion allotted to GenCos), achieving 100 per cent subscription from pension funds, banks, and investors. Phase one aims for N1.23 trillion by Q1 2026, with five GenCos (e.g., Geregu, First Independent Power) signing settlements totalling N501.02 billion.
Speaking further, Yakubu said: “Let me be direct. If we want a stable power sector, we must pay for the choices we make. When tariffs are held below cost, a gap is created. That gap is a subsidy. And a subsidy is a bill. In 2026, we will stop pretending that this bill can be left to the federal government alone—especially where the policy choice or the political benefit is shared across tiers of government.”
Yakubu, who was represented by the Director of Expenditure (Social), Mr Yusuf Muhammed, further reinforced the warning with:
“This means: subsidy costs must be explicit, tracked, and funded—so they do not return as arrears, liquidity crises, or hidden liabilities in the market.
“It also means that if any tier of government chooses affordability interventions, the funding responsibilities must be clear, agreed, and enforceable.”
According to him, whenever electricity tariffs are held below the cost of supply, a financing gap is created, which automatically translates into a subsidy obligation that must be paid for. He stressed that in 2026, the Federal Government would “stop pretending” that this burden can be left solely to the centre, particularly where policy decisions and political benefits are shared across different tiers of government.
He revealed that President Bola Ahmed Tinubu has directed the operationalisation of a clearer and more transparent framework for sharing electricity subsidy costs across the federation, rather than treating them as an open-ended federal responsibility.
“In simple terms, a subsidy is a bill,” Yakubu said, adding that unpaid subsidies have continued to resurface as arrears, liquidity crises and hidden liabilities within the electricity market.
Industry data show that subsidy obligations owed by the Federal Government to electricity generation and distribution companies have accumulated to staggering levels over the years, running into trillions of naira—a situation operators say has weakened liquidity, discouraged investment, and undermined service delivery across the power value chain.
The unpaid obligations, officials acknowledge, have increasingly crowded out spending on critical sectors, reduced fiscal space, and strained government revenues already pressured by debt servicing and other recurrent commitments.
Yakubu explained that the new policy direction would require subsidy-related costs to be made explicit, tracked and properly funded, rather than pushed into the electricity market as unfunded commitments. He also stressed that any affordability intervention by any tier of government must now come with clearly defined, enforceable funding responsibilities.
While the director general did not explicitly announce an immediate tariff hike, analysts say the clear message from the Budget Office points to a gradual withdrawal of blanket electricity subsidies, a move that could lead to higher tariffs as prices move closer to cost-reflective levels.
The government has, however, repeatedly stated that any adjustment to electricity tariffs would be accompanied by targeted protections for vulnerable consumers, rather than across-the-board subsidies that distort the market.
Yakubu described the emerging framework as “alignment, not punishment,” arguing that when all stakeholders bear a fair share of subsidy costs, there would be stronger incentives for efficiency, transparency and long-term sustainability in the power sector.
The remarks form part of broader fiscal reforms embedded in the 2026 Budget strategy, which aims to eliminate hidden liabilities, restore budget credibility and ensure that government spending decisions are backed by realistic financing plans.
As preparations for the 2026 budget gather momentum, the electricity subsidy rethink is expected to become one of the most consequential and politically sensitive policy debates, with far-reaching implications for consumers, investors, and the wider economy.
SMEs risk closures, businesses, consumer groups warn
Reacting to the proposed hike, the Director and Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said that from a purely economic and technical perspective, the reform could help achieve a sustainable, steady, and reliable power supply.
However, he stressed that the issue goes beyond economics, encompassing social considerations, political dynamics, and the absorptive capacity of Nigerians.
“The timing of such reforms is critical. It is essential to consider whether implementing these changes is advisable given the current socio-economic conditions and the prevailing political climate,” Yusuf said.
He noted that small and medium-sized enterprises (SMEs) and households are still grappling with the effects of recent economic reforms, including fuel subsidy removal and foreign exchange unification.
He added that many Nigerians are also struggling to understand and adjust to recent tax reforms.
“It is not easy for the average citizen or business owner,” he said, urging the government to carefully sequence policy changes to avoid public backlash.
While acknowledging the economic rationale for tariff adjustments, Yusuf emphasised that political and social considerations must guide decision-making at this stage.
“Strategy plays a vital role in managing economic policies,” he said, calling on the government to allow some breathing space before introducing additional reforms.
“There is an urgent need for comprehensive political and social consideration regarding this proposal,” he added.
Similarly, the President of the Association of Small Business Owners of Nigeria (ASBON), Dr Femi Egbesola, urged the government to ensure proper regulation of electricity pricing through the relevant regulatory authorities.
He warned that higher tariffs would impose additional shocks on micro, small, and medium enterprises (MSMEs), many of which are already operating below profit levels.
“Many small businesses are no longer running at a profit. This will lead to reduced production, job losses, declining cash flow, and, ultimately, business closures. It is indeed a sorry case,” Egbesola said.
He added that the policy would further fuel inflation, as higher energy costs translate into increased prices of goods and services.
“This reality is already evident. Many of our MSME members are complaining of low or no sales,” he said, lamenting the absence of palliatives to cushion the impact on poor households and small businesses.
On his part, the Executive Director of the Consumer Protection Advocacy Centre, Princewill Okorie, condemned the proposed hike, describing it as an attempt to further impoverish Nigerians amid worsening economic hardship.
He questioned the role of the Federal Competition and Consumer Protection Commission (FCCPC) in safeguarding consumer interests.
“Why is the Federal Government making life difficult for consumers? What is the Consumer Protection Commission doing to ensure Nigerians are not exploited?” Okorie asked.
He criticised the move to extend higher tariffs beyond Band A consumers, noting that many Nigerians are unmetered and often pay for electricity that is either irregular or unavailable.
“This increase is uncalled for, especially when consumers are still paying for meters themselves while DisCos make profits without adequate investment,” he said.
Okorie urged the government to address structural challenges in the power sector and ensure consumer protection before considering any tariff increase.
POINTS AT ISSUE
1 Subsidy Origins: Federal subsidies date back to the NEPA/PHCN era, keeping tariffs below costs (often <30%) to protect consumers amid high generation costs from gas shortages and losses; post-2013 privatisation, NBET funds gaps totalling trillions in arrears.
2 Debt Scale: Unpaid obligations hit N1.98 trillion over 12 months to late 2025, with N200 billion monthly outflows by early 2026, weakening GenCos/DisCos liquidity and crowding out investments. This is besides the over N4trn owed to GenCos since 2015 for gas arrears
3 Phased Subsidy Removal: The federal government in April 2024 began a phased subsidy withdrawal with the introduction of the higher tariff for Band A customers (20+ hours supply) at N209-N225/kWh, which helped reduce its obligations by about 35 per cent.
4 Settling Outstanding Debts of over N4trn: The Presidential Power Sector Debt Reduction Programme launched a N501bn bond in January 2026 (fully subscribed), settling GenCos/gas arrears since 2015 to boost capacity for 12M customers.
5. Implication for Nigerians: Cost-reflective tariffs could push rates to N225/kWh or higher across all bands, thereby tripling monthly spending for many (e.g., Band A households saw a 98% rise to N34,942, average post-2024 hikes). Lower-income families are likely to bear the brunt without proportional service gains, echoing the pains of fuel subsidies.
