Winners and losers of FG’s electricity subsidy reform

Nigeria’s electricity subsidy regime is undergoing a seismic shift, creating a clear divide of winners and losers as the Federal Government moves to shed a fiscal burden that has ballooned to over N1.98 trillion annually.

President Bola Ahmed Tinubu on Monday directed all government ministries, departments, and agencies (MDAs) to use existing laws to make the sharing of electricity costs among the federal, state, and local governments more practical and transparent.

Read also: FG, states to share electricity subsidy burden in 2026 budget

Starting with the 2026 budget, however, subsidy costs will be shared across the three tiers of government. This reform promises transparency and fiscal discipline, but it also reshapes the political economy of electricity in Nigeria.

This shift redraws the winners and losers in Nigeria’s power sector.

From hidden subsidy to explicit obligation

For over a decade, Nigeria ran a de facto electricity subsidy by suppressing tariffs below cost-reflective levels. The result was mounting revenue shortfalls, liquidity crises across the value chain, weak investment appetite, and unreliable power supply.

The Electricity Act 2023 ends this ambiguity. It explicitly allows both the Federal Government and state governments to grant subsidies, but only through a defined mechanism, the Power Consumer Assistance Fund (PCAF).

In doing so, the law separates tariff setting from social protection, insisting that if electricity is to be cheap, the subsidy must be budgeted, transparent and paid for.

“This is good for the sector, the FGN should not be carrying the subsidy burden alone with all tiers of government enjoying it,” said Adetayo Adegbemle, Executive Director, PowerUp Naija.

Legal bounds

The Nigerian Constitution does not have a clause that explicitly creates, mandates, or governs the payment of subsidies for electricity or energy. According to energy lawyers, subsidies are a policy choice and budgetary decision, not a constitutional entitlement or obligation spelt out in the Constitution.

However, the Electricity Act 2023, the primary statute governing Nigeria’s electricity market, addresses tariffs and subsidies, and it links subsidy implementation to a specific legal framework:

Section 117 of the Electricity Act 2023 allows the Federal or State Government to grant electricity subsidies, but requires that such subsidies be implemented through the Power Consumer Assistance Fund (PCAF) established under the Act.

This means subsidy payment has a statutory mechanism and structure, but not a constitutional one.

“Notwithstanding anything contained in this Act, if the Federal or State Government, as the case may be, desires to grant any subsidy to any consumer or class of consumers in the tariff determined by the Commission under this Act, such subsidy by the Federal or State Government or cross subsidies shall, in order to avoid undue exposure of licensees to speculative revenues, be implemented within the Power Consumer Assistance Fund established under this Act,” the section stated.

Who gains from the new framework

Power sector operators emerge as the clearest winners. Cost-reflective tariffs, backed by clearly funded subsidies, reduce revenue uncertainty and improve cash flow across generation and distribution. This is critical for a sector that has struggled to attract capital despite chronic demand.

The Federal Government also gains fiscal clarity. Sharing subsidy responsibility with states aligns electricity reform with Nigeria’s broader subsidy recalibration, after fuel, electricity is the next frontier of fiscal realism.

Reform-minded states stand to benefit strategically. With constitutional backing to regulate electricity markets within their territories, states can now deploy subsidies as economic tools, supporting industrial clusters, SMEs, hospitals, or low-income households, rather than maintaining blanket price suppression.

Investors, particularly in embedded generation and distribution infrastructure, benefit from clearer rules on who bears subsidy costs and how revenues are secured.

Read also: Mixed reactions trail FG directive on free prepaid electricity meters

Who bears the cost

The immediate losers are urban middle-class consumers, who historically benefited from below-cost tariffs without qualifying as vulnerable. As cross-subsidies are phased out, this group faces higher electricity bills.

Fiscally weak states are also exposed. States with limited revenue capacity may struggle to subsidise electricity meaningfully, risking higher tariffs and deeper energy poverty. Over time, electricity affordability could increasingly reflect state wealth, raising equity concerns.

“It is a win-win for everyone involved in the value chain, from gas producers to the generating companies and every player in the value chain,” Adegbemle said.