62.5% Surge in Power Sector Debt Puts FG’s N1.2 Trillion Bond at Risk

Efforts by the Federal Government (FG) to clear debts owed to electricity generation companies (GenCos) are facing mounting challenges, as the sector’s debt surged 62.5% to N6.5 trillion by the end of 2025, up from N4 trillion at the start of the year. In mid-December 2025, the government launched a funding initiative with the issuance of a N590 billion Series 1 Power Sector Bond, part of a plan to raise N1.23 trillion by the end of the first quarter of 2026 to improve liquidity in the sector.

Decades of accumulated debt have long hampered investment in critical infrastructure, limiting Nigeria’s power supply. However, concerns have emerged over the bond’s transparency and its ability to effectively address liquidity issues.

Data obtained from the industry shows that GenCos received only 35% of invoices for electricity supplied to the national grid, further deepening the liquidity crisis in the Nigerian Electricity Supply Industry (NESI). Between May and October 2025, 25 generation companies issued invoices totaling N1.531 trillion but received just N547.37 billion. The remaining N984.3 billion is expected to be covered by government electricity subsidies.

Breakdowns by month revealed similar gaps: in May, N282.14 billion invoiced, N96.40 billion paid; June, N257.26 billion invoiced, N91.36 billion paid; July, N268 billion invoiced, N96.29 billion paid; August, N245.96 billion invoiced, N88.59 billion paid; September, N226.67 billion invoiced, N81.78 billion paid; and October, N251.65 billion invoiced, N92.95 billion paid.

The low payments are largely due to the Nigerian Electricity Regulatory Commission’s (NERC) DisCos Remittance Obligation (DRO), introduced in 2024, which requires distribution companies to remit roughly 40% of invoices received from the Nigerian Bulk Electricity Trading (NBET) Plc. The Federal Government funds the gap between cost-reflective tariffs and actual consumer tariffs through subsidies.

NERC’s third-quarter 2025 report shows that DisCos collected N570.25 billion of N706.61 billion billed, reflecting an 80.7% collection efficiency. While migration to Band A tariffs helped revenue, widespread blackouts persist.

Despite GenCos’ objections over the bond’s structure and payment terms, the FG is moving ahead. An advisory document from the Association of Power Generation Companies (APGC) described parts of the bond as “death warrants” for GenCos, citing risks due to reliance on verbal government assurances and an unrecognized special purpose vehicle (SPV) as the issuer. Questions remain over the viability of proposed funds and the historical underperformance of DisCo collections.

Stakeholders attribute the rising debt to the government’s failure to adequately fund electricity subsidies. Chijoke James, Chairman of the Electricity Consumers Association of Nigeria, noted that while consumers are dissatisfied with distribution services, the government must honor its subsidy commitments, as higher tariffs have not translated into better supply.

Energy expert Prof. Yemi Oke warned that the subsidy system is unsustainable, with over N4 trillion owed to GenCos and an additional N2 trillion added annually. He stressed that the current approach undermines economic growth and investment.

Edu Okeke, Managing Director of Azura Power West Africa, added that GenCos continue to receive only about 38% of their invoices, and without proper payments, new investment will not materialize. He cautioned that even with the proposed bond, debt will keep accumulating if fundamental sector issues are not resolved, noting that another N4 trillion in debt could emerge within a short time.

The situation underscores the urgent need for structural reforms and transparent funding mechanisms to stabilize Nigeria’s power sector.