Subsidies and the STEG problem no government will name
Tunisia’s 2026 budget puts a number on one of the country’s most difficult economic problems: energy subsidies are being reduced, but the state is still carrying a system that keeps electricity and gas prices politically manageable while pushing pressure onto public finances and STEG.
Under the 2026 Finance Bill, energy subsidies for fuel and electricity are expected to fall to about TND 4.99 billion, down from TND 5.72 billion projected for 2025, a reduction of roughly TND 726 million. Of that amount, about TND 3.14 billion is allocated to the Société tunisienne de l’électricité et du gaz, with around TND 1.86 billion going to the Société tunisienne des industries de raffinage.
The figures show the scale of the problem. Tunisia is trying to reduce the subsidy bill without provoking a social shock, while STEG remains central to almost every part of the equation: household electricity bills, gas distribution, industrial costs, renewable energy integration and the financial health of the state owned enterprise sector.
The government’s stated approach is gradual. Budget documents cited in local reporting point to better performance by public enterprises, tighter control of energy consumption and stronger oversight of household gas cylinder distribution. The assumptions behind the 2026 subsidy line include an average Brent price of $63.3 a barrel, a stable exchange rate, a 6 percent rise in fuel consumption and a 3 percent increase in electricity consumption.
Those assumptions leave little room for error. If oil and gas prices rise, if the dinar weakens, or if demand grows faster than expected, the subsidy bill can quickly move back up. If prices are passed on to households and companies too sharply, the political cost is immediate. That is the trap every government has faced: subsidies are expensive to keep, risky to cut and difficult to target.
STEG sits in the middle of that trap. The company is expected to provide reliable electricity and gas, absorb part of the social cost of administered prices, invest in the grid, buy energy inputs, pay suppliers and support the transition toward renewables. At the same time, its financial position has been strained by arrears, collection problems, losses and the gap between real energy costs and politically acceptable tariffs.
The state has started to address part of the problem through financing and restructuring. In November 2025, the Ministry of Industry, Mines and Energy announced discussions around a $430 million financing agreement with the World Bank, equivalent to about TND 1.33 billion, aimed at improving STEG’s operational and financial performance, strengthening electricity supply and accelerating renewable energy projects. The ministry said the programme should also help reduce the cost of subsidies and support energy autonomy.
The 2026 budget also provides for the settlement of part of the arrears accumulated by STEG and STIR between 2016 and 2024, according to reporting on the Finance Bill. About TND 350 million is expected to go toward STEG arrears and TND 320 million toward STIR, as part of a wider TND 670 million regularisation.
That regularisation matters, but it does not solve the underlying problem. Paying arrears clears part of the past. It does not answer how electricity should be priced, who should be protected, how much the state can afford, and whether STEG can invest enough to modernise the system while carrying a social role it did not design.
The public debate often focuses on electricity bills, especially after tariff increases or seasonal consumption spikes. But the deeper issue is structural. Tunisia’s energy model relies heavily on natural gas, including imports from Algeria. Electricity demand continues to rise. Renewable energy remains below official targets. By June 2025, installed renewable energy capacity stood at about 787 megawatts, or roughly 6 percent of electricity generation, while the government’s target is to reach 35 percent of power capacity from renewables by 2030.
That gap has direct financial consequences. The longer Tunisia depends heavily on imported gas and subsidised energy prices, the more exposed the budget and STEG remain to external shocks. Renewable energy could reduce part of that exposure over time, but projects have been slow, financing needs are large and the grid requires investment.
For households, the issue is affordability. Many families already struggle with prices, and electricity bills have become a sensitive subject. Tunisia’s tariff structure is progressive, meaning consumers pay different rates according to consumption levels. That helps protect small consumers in principle, but it does not fully resolve the broader question of who benefits from energy subsidies and whether public support reaches those who need it most.
For companies, electricity prices are part of competitiveness. Higher tariffs can raise production costs, but unreliable supply or a financially weakened utility can be even more damaging. A reform that simply raises prices without improving service, investment and predictability would face resistance from both households and businesses.
For the state, the fiscal burden is difficult to ignore. Subsidies protect social stability, but they also compete with spending on health, education, infrastructure and regional development. They can also mask the real cost of energy, delaying efficiency measures and encouraging consumption patterns the country can no longer easily afford.
This is the problem no government wants to name clearly: Tunisia cannot maintain cheap energy, protect every household, keep STEG financially stable, reduce the deficit, modernise the grid and accelerate renewables without making political choices. Something has to give.
A serious reform would need to separate protection from distortion. Low income households should remain protected. Wasteful consumption should not be subsidised in the same way. STEG should be compensated transparently for any social mandate it carries. Tariffs should be clearer. Arrears should not be allowed to accumulate quietly. Renewable projects should move faster, not only as climate policy but as fiscal protection.
The next stage will depend on whether the government treats the 2026 subsidy reduction as a budget adjustment or as part of a deeper energy reform. If global prices remain favourable, the state may gain temporary breathing space. If they rise again, the same question will return with greater urgency.
For now, the figures in the Finance Bill show a familiar pattern: subsidies are being trimmed, arrears are being regularised, and financing is being sought to stabilise STEG. The harder debate is still waiting. Tunisia has to decide how much energy should really cost, who should pay the difference, and how long STEG can keep carrying a problem that belongs to the whole state.