Power Generation Companies Disagree as FG Announces Plan to Cut Electricity Subsidy
- The federal government announced plans to share electricity subsidy costs across all tiers of government
- Power generation companies disagreed with the plan, warning of worsening liquidity issues
- Electricity distribution companies supported the plan, calling it fair and workable
Oluwatobi Odeyinka is a business editor at Legit.ng, covering energy, the money market, technology and macroeconomic trends in Nigeria.
Power Generation Companies (GenCos) have criticised the federal government’s announcement that it would stop bearing electricity subsidy costs alone from 2026 and instead share the burden among federal, state, and local governments
Source: Getty Images
The Managing Director and Chief Executive Officer of the Association of Power Generation Companies, Joy Ogaji, said claims of government subsidy are not backed by budgetary allocations or official documentation.
As reported by PUNCH, she argued that there is no verifiable evidence of an existing electricity subsidy, stressing that generation companies have been absorbing revenue shortfalls for more than a decade.
GenCos paid under 35% of invoices, trillions owed
She stated that GenCos are paid less than 35 per cent of their monthly invoices, a situation she described as unsustainable.
She cited budget figures to support her position, saying that while the federal government provided N1.09 trillion for the power sector in the current year, monthly shortfalls of about N200 billion remain unfunded.
According to her, outstanding debts owed to GenCos through the Nigerian Electricity Trading Plc had risen to about N6.4 trillion by December 2025, with only a N501 billion bond issued to address historical liabilities.
Ogaji also disclosed that the Nigerian Electricity Regulatory Commission (NERC) confirmed there was no official approval or documentation showing that the federal government formally recognised or funded a subsidy in tariff calculations.
She warned that extending the same unfunded assumptions to state and local governments could deepen the sector’s financial crisis unless the shortfall is formally acknowledged and financed.
Background
The federal government recently proposed that electricity subsidy payments be deducted directly from statutory allocations shared through the Federation Account Allocation Committee (FAAC), a move that could remove up to N3.6 trillion from the federation account between 2026 and 2028.
The policy is part of the current electricity reforms of the federal government, which uphold the total decentralisation of the electricity market and regulation in the country.
The policy direction was disclosed by the Director-General of the Budget Office of the Federation, Tanimu Yakubu, during a training and sensitisation workshop in Abuja on the 2026 post-budget preparation process.
Yakubu said the initiative followed a directive by President Bola Tinubu to prevent the buildup of hidden liabilities in the electricity market and ensure that all subsidy-related costs are clearly identified and funded.
He explained that keeping electricity tariffs below cost creates a financial gap that must be paid for, adding that the Federal Government would no longer carry this responsibility alone, where policy benefits cut across all tiers of government.
Yakubu noted that the 2026 budget proposal currently before the National Assembly made no provision for monthly electricity subsidies, despite persistent tariff shortfalls in the sector.
Source: Getty Images
DisCos welcome sharing of subsidy among govts
While GenCos have challenged the long-standing claim that electricity is currently subsidised, warning that the policy could worsen the sector’s liquidity challenges, electricity distribution companies (DisCos) have welcomed the plan as fair and workable.
The Chief Executive Officer of the Association of Nigerian Electricity Distributors, Sunday Oduntan, expressed support for the Federal Government’s plan, describing it as fair and achievable.
Oduntan said the government could implement the policy through deductions at source from states’ FAAC allocations, adding that while states’ capacity to absorb the costs may differ, the approach remains feasible.
However, he cautioned against a blanket removal of subsidies, arguing instead for targeted support for vulnerable electricity consumers based on reliable data.
Electricity debt: FG raises N501bn bonds
Legit.ng earlier reported that the federal government raised N501 billion through bonds to address historic debts in the electricity sector.
The bond, issued under the Presidential Power Sector Debt Reduction Programme, achieved full subscription and marks the most concrete step yet by the Bola Tinubu administration to resolve payment arrears that have crippled electricity generation for more than a decade.
The settlement programme could improve electricity service delivery for over 12 million customers.
Proofreading by Funmilayo Aremu, copy editor at Legit.ng.
Source: Legit.ng
