Ending electricity subsidy: Fiscal necessity or another public burden?

Another national argument over what is right, what is necessary, and whether this is the right time is looming. The pressure is mounting, as members of the Senate Committee on Appropriations keep pushing for the full removal of electricity subsidy as part of efforts to ease fiscal strain. The Committee’s Chairman, Adeola Olamilekan, said the subsidy regime is a major drain on public finances and insists that eliminating it would free trillions of naira for governance. The logic is straightforward: cut the subsidy, save money, redirect funds. However, the real question should not have been whether subsidy is expensive. It should rather be whether Nigerians can absorb another abrupt cost transfer at this moment without severe social and economic consequences.

Electricity is not a peripheral utility; it is the bloodstream of modern life. Any attempt to eliminate electricity subsidy in Nigeria must also confront the architecture of government commitments largely tied to electric power access. Nigeria’s Energy Transition Plan, the National Energy Compact, clean cooking targets, industrial growth ambitions — all of these depend on expanding affordable and reliable electricity. A sudden tariff escalation without a carefully designed transition framework will surely undermine the very development targets the government says it wants to accelerate. The biggest issue is the absence of a clearly communicated post-subsidy cushioning programme. If one exists, it has not been made public, which is exposing the subsidy removal as a reform without preparation.

Recently, the Director-General of the Budget Office of the Federation has, in another development, revealed that the federal government is moving to stop carrying electricity subsidy costs alone and to spread the burden across federal, state, and local governments from 2026. Shared fiscal responsibility is defensible and quite understandable. After all, subnational governments also benefit from electrified economies. But cost-sharing is not subsidy removal. While a coordinated inter-governmental framework could improve transparency and discipline, an outright withdrawal of support, however, would result to transferring financial pressure directly to already embattled households and small businesses.

Nigerians are still adjusting to the shock of fuel subsidy removal. Transportation costs surged. Food prices escalated. Informal businesses struggled to recalibrate. Many households have not regained equilibrium. And several SMEs were forced to close down. Introducing another utility shock in quick succession would test economic resilience beyond reasonable limits. Reform sequencing matters but economic stamina of citizens is not infinite.

The fuel subsidy events should serve as a great lesson. For decades, Nigerians operated within a subsidy-conditioned pricing environment. Its removal came swiftly, with total absence of structured support systems in place. It was widely projected that ending fuel subsidies would significantly reduce borrowing, stabilise fiscal balances, and unlock transformative investments. Yet public debt remains elevated, and borrowing continues. While FAAC allocations to states increased substantially, structural transformation especially at the grassroots is absent. Salary arrears were majorly addressed in some states, a necessary step, but productivity reforms, rural infrastructure expansion, and social protection initiatives have not kept pace with public expectations.

There is also an energy access and climate dimension that cannot be ignored. Higher electricity costs could push vulnerable households toward cheaper but dirtier alternatives such as charcoal, firewood, small generators, complicating clean cooking objectives and emissions reduction commitments. Energy transition cannot be achieved through policy documents alone; it requires affordability pathways. If electricity becomes inaccessible for low-income users, a deepening energy poverty will be the result. Industrial competitiveness will also suffer if small manufacturers face rising power costs without stability guarantees.

None of this, however, implies that the current subsidy structure should remain untouched. Leakages, opacity, and inefficiencies must be addressed. Tariff rationalisation may be inevitable over time. But reform design must reflect institutional capacity and household vulnerability. Targeted lifeline tariffs for low-income consumers, productivity-linked industrial support, and transparent subsidy accounting would constitute credible reform. Abrupt elimination would constitute additional financial burden without social calibration.

Distributing subsidy responsibility across federal, state, and local governments can enhance accountability and shared ownership. Electricity underpins governance at every tier. However, complete removal at this juncture would be a grave miscalculation. Fiscal consolidation should not outpace service delivery reform or citizen recovery. The objective should not be to reduce expenditure lines in a budget; it should be to strengthen the foundations of economic productivity and social stability.

Isah Kamisu Madachi resides in  Abuja and can be reached via [email protected]

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