The Federal Government has approved a plan to settle longstanding debts owed across Nigeria’s power sector, in what officials describe as a critical step toward stabilising the country’s fragile electricity value chain.
The announcement, conveyed in a statement on Sunday by the Special Adviser to the President on Information and Strategy, Bayo Onanuga, followed what authorities called a “final review” of legacy liabilities that have plagued the sector for more than a decade.
According to the President’s Special Adviser on Energy, Olu Arowolo-Verheijen, the proposed settlement is expected to unlock improvements across the electricity value chain, boosting power generation, enhancing reliability, attracting new investment, and ultimately creating jobs.
“This programme is not just about settling legacy debts,” the adviser said. “It is about restoring confidence across the power sector—ensuring gas suppliers are paid, power plants remain operational, and the system begins to function more efficiently.”
The term “legacy debt” broadly refers to the Federal Government’s financial obligations to power generation companies (GenCos) within the Nigerian Electricity Supply Industry (NESI), spanning from 2015 to March 2025.
These liabilities largely stemmed from unpaid subsidies used to cushion electricity tariffs for consumers after power was privatised. The Nigerian Bulk Electricity Trading (NBET) Plc acted as the intermediary through which the government absorbed part of the cost to keep electricity affordable.
What is now termed “legacy debt” is, therefore, not a single liability but a build-up of years of underpayments embedded within the Nigerian Electricity Supply Industry (NESI).
Nigeria’s electricity sector has grappled with a persistent liquidity crisis since its privatisation in 2013. At the heart of the problem is a structural imbalance: the cost of generating and delivering electricity consistently exceeds the revenue collected from consumers.
Electricity tariffs have remained largely non-cost-reflective, while distribution companies struggle with inefficiencies in metering, billing, and revenue collection. This mismatch has created chronic funding gaps.
To cushion consumers, the government—through the Nigerian Bulk Electricity Trading (NBET) Plc—absorbed part of the cost via subsidies and payment assurances. Over time, these unpaid obligations accumulated and cascaded across the value chain, leaving generation companies and gas suppliers significantly underpaid.
Breaking down the debt
Industry stakeholders stress that the debt comprises a complex bundle of contractual liabilities rather than simple unpaid invoices. These include payments for electricity generated and supplied, capacity charges for power made available but not utilised, and “deemed capacity” costs tied to contractual commitments.
There are also foreign exchange differentials driven by naira volatility, interest on overdue payments—often benchmarked at the Nigerian Interbank Offered Rate (NIBOR) plus four percentage points—and gas supply costs, including outstanding VAT obligations.
Operational inefficiencies have further inflated costs. Power plants incur heavy expenses due to frequent start-stop cycles caused by grid instability, while additional burdens arise from providing ancillary services such as spinning reserves and black start capabilities—often without clear compensation frameworks.
GenCos are also required to operate under Free Governor Mode of Operation (FGMO), which places added mechanical strain on equipment without corresponding financial recognition.
Taken together, these elements underscore the depth and complexity of the liabilities the government seeks to resolve.
According to the statement by Onanuga, the repayment had the buy-in of 15 power plants with N223bn disbursed. But the money raised so far from the bond market, which is less than 15 per cent of N3.3 trillion, the government claims to owe, is grossly insufficient to quench the dissatisfaction that led to reduced gas supply to generation plants.
GenCos question debt sum, payment method
However, GenCos dispute the government’s figures. While the Federal Government has verified N3.3 trillion, operators insist that total outstanding obligations hover around N4 trillion. This includes about N2 trillion in accumulated debts over the years, alongside an additional N2 trillion in unpaid subsidies for 2024 alone.
Notably, about 75 per cent of the debt is reportedly owed to gas suppliers whose product is indispensable for thermal power generation. Mounting arrears have already led some suppliers to scale back deliveries, further constraining electricity output nationwide.
The discrepancy between the government’s verified N3.3 trillion and the N4 trillion claimed by GenCos is already raising tensions within the industry.
Joy Ogaji, Chief Executive Officer of the Association of Power Generation Companies (APGC), questioned both the methodology and timing of the announced payment.
In an interview with Daily Trust on Sunday, Ogaji recalled an earlier development in which about N4trn was approved in July 2025 following a reconciliation exercise involving key stakeholders in March 2025.
“This raises more questions. Is this N3.3trn different from the N4trn he approved in 2025? Or is it an additional one?” she asked.
She noted that no fresh reconciliation has taken place since March 2025, raising doubts about how the government arrived at N3.3 trillion.
“I spoke with the GenCos, and they confirmed that after the March reconciliation, no other reconciliation has been done. So, how did the government get their figures from?” she queried.
Ogaji stressed that electricity market transactions are governed by bilateral agreements, meaning that any settlement figure must be jointly verified by all parties.
“We are talking about a bilateral agreement. Which means reconciliation of figures should be done by all parties. We want the government to publish how they arrived at their figures and what components formed,” she said.
“We are not aware of any such verification outside the last reconciliation concluded in March 2025,” Ogaji said, urging the government to publish details of the process and parties involved.
She also questioned whether the approved sum would be paid in cash or through financial instruments such as bonds and demanded clarity on timelines.
“That is, if the announcement is cash-backed and not merely a political pronouncement. We have not seen any money,” she added.
She further argued that the term “legacy debt” has been loosely applied, noting that liabilities extend beyond the commonly referenced 2015–2025 period.
Repayment amid rising costs
Kunle Olubiyo, President of the Nigeria Consumer Protection Network, warned that the current scale of repayment is too limited to incentivise gas suppliers to increase supply to power plants.
He said the earlier N501 billion bonds announced by the government has yet to significantly impact the sector due to stringent disbursement conditions that GenCos must meet.
Olubiyo also highlighted emerging cost pressures, including recent adjustments in gas pricing. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) have revised the domestic base price of gas upward. Under the new regime, the price of natural gas for power generation has risen to $2.18 per million British thermal units (MMBtu), up from $2.13 in 2025—a 2.35 per cent increase.
He cautioned that these rising input costs could trigger further electricity tariff hikes, compounding the burden on consumers.
“Payment of debts and tariff increases are not silver bullets,” Olubiyo said. “They will not resolve the structural distortions in the electricity market. We have been going in circles while avoiding the fundamental issues.”
Olubiyo questioned whether the N3.3 trillion figure reflects the full extent of liabilities in the sector.
He argued that, in principle, legacy debts should refer to pre-privatisation obligations across the electricity value chain, covering generation, transmission, and distribution segments.
The energy expert hinted at a far larger burden, saying debts owed to generation companies and gas producers alone are estimated at about N8 trillion, with additional capacity-related obligations of roughly N4 trillion, bringing the total to approximately N12 trillion.
Olubiyo also raised concerns about unresolved liabilities in other segments of the market, including debts in the transmission subsector linked to auxiliary services and wheeling charges, as well as persistent shortfalls in the distribution segment arising from market inefficiencies, tariff gaps, and subsidy deficits.
This suggests that the government’s N3.3trn planned payment represents only a portion of total sector liabilities, rather than a comprehensive settlement.
Will power supply improve?
The Federal Government maintains that settling the debts will stabilise the sector and improve the electricity supply. However, structural constraints remain. Transmission infrastructure continues to limit the amount of power that can be evacuated, while inefficiencies in the distribution segment—particularly in metering and revenue collection—persist.
As a result, experts say any improvements in electricity supply are likely to be gradual and contingent on broader reforms beyond the N3.3trn debt settlement.
While the government’s approval signals a willingness to confront the sector’s liquidity crisis, key questions remain unanswered.
Will the N3.3 trillion commitment translate into actual cash flows for service providers? Can partial repayments restore confidence among investors and gas suppliers? And will the intervention be sufficient to resolve the structural inefficiencies that have long undermined Nigeria’s power sector?
Until concrete disbursements are made and deeper reforms implemented, experts say the crisis may persist despite renewed promises.