62.5% rise in electricity sector debt threatens FG’s N1.2trn bond

By Obas Esiedesa

Efforts by the Federal Government (FG) to address debts owed to electricity generation companies (GenCos) may be facing increasing challenges as the debt burden rose 62.5% to N6.5 trillion at end 2025, up from N4trillion recorded at the beginning of the year.

The government had flagged off the funding program through the issuance of N590 billion Series 1 Power Sector Bond in mid-December 2025, as part of a plan to raise N1.23 trillion by the end of the first quarter of 2026 to improve system liquidity in 2026.

The power sector has been shackled in decades by huge debts which hampered investment in critical infrastructure needed to boost power supply in the country.

However, the first part issuance, comprising N300 billion Tranche A and N290 billion Tranche B, has raised concerns over transparency and the overall performance of the sector liquidity.

With the Federal Government failing to meet its financial obligations, industry data obtained exclusively by Financial Vanguard showed that GenCos were paid just 35 per cent of their invoices for electricity supplied to the national grid, further compounding the liquidity crisis in the Nigerian Electricity Supply Industry (NESI).

Plants receive N547bn for N1.531trn invoices in 6 months

The data, covering six payment cycles from May to October 2025, revealed that 25 generation companies issued invoices totaling N1.531 trillion for power supplied to the grid but received only N547.369 billion, representing 35.74 per cent. The balance of N984.3 billion is expected to be paid by the government as electricity subsidies.

A breakdown of the figures showed that GenCos issued invoices of N282.139 billion in May and received N96.402 billion (34.17 per cent). In June, invoices amounted to N257.261 billion, while payments stood at N91.357 billion (35.51 per cent). July invoices totaled N267.999 billion, with payments of N96.287 billion (35.93 per cent). In August, GenCos invoiced N245.956 billion and received N88.593 billion. For September and October, invoices were N226.665 billion and N251.649 billion, while payments were N81.783 billion (36.08 per cent) and N92.947 billion (36.94 per cent), respectively.

Why GenCos receive low payments – NERC

In 2024, the Nigerian Electricity Regulatory Commission (NERC) introduced the DisCos Remittance Obligation (DRO), which requires electricity distribution companies (DisCos) to remit about 40 per cent of invoices received from the Nigerian Bulk Electricity Trading (NBET) Plc for power taken from the national grid.

“The FGN policy on subsidy and electricity tariffs provides for a gradual transition to cost-reflective end-user tariffs, with safeguards for less-privileged electricity consumers. Accordingly, the Federal Government has committed to funding the revenue gap arising from the difference between cost-reflective tariffs approved by the Commission and the actual end-user tariffs during the transition period,” NERC stated in an order issued to Benin Electricity Distribution Company (BEDC) in May 2025.

In its third-quarter 2025 report released a few days ago, NERC noted:

“Market remittance to NBET: In the absence of cost-reflective tariffs, the government undertakes to cover the resultant gap (between the cost-reflective and allowed tariff) in the form of tariff subsidies. For ease of administration, the subsidy is applied only to the generation cost payable by DisCos to NBET at source in the form of a DisCo’s Remittance Obligation (DRO). The DRO represents the total GenCo invoice billed to DisCos by NBET based on what the allowed DisCo tariffs can cover. Furthermore, DisCos are expected to remit 100 per cent of invoices received from the Market Operator for transmission and administrative service costs.”

The NERC third-quarter report showed that total revenue collected by all DisCos in Q3 2025 stood at N570.25 billion, out of N706.61 billion billed to customers, representing a collection efficiency of 80.7 per cent. The revenue was boosted by the continued migration of customers to the Band A tariff category, despite widespread blackouts across the country.

Issues with N1.23trn bond

Despite objections from GenCos over the structure of the bond and contractual arrangements governing payments from bond proceeds, the Federal Government has pressed ahead with the policy. The companies, however, continue to demand transparency in the process.

An advisory document commissioned by the Association of Power Generation Companies (APGC), and obtained exclusively by Financial Vanguard, described some clauses in the bond documentation as “death warrants” for GenCos.

The document raised serious concerns about the overall structure of the bond and urged the companies to proceed with caution.

“Structure and mechanics of the bond: Investigations show that there is no bankable structure underpinning the bond. What is being offered is verbal good faith and Federal Government backing by the Coordinating Minister of the Economy, the Debt Management Office (DMO) and the Special Adviser on Energy.

This makes the bond extremely risky, given that the issuer, NBET Finance Company, is an orphan special purpose vehicle (SPV).

“Financial, operational and regulatory implications for GenCos: For this bond to be successfully issued, it must comply with approvals from critical regulatory bodies such as the National Assembly, Bureau of Public Procurement and PENCOM.

In addition, the issuer, the SPV, is not recognised by the regulator, NISO, either as a licensee or a market participant.

“Risk exposures and mitigation strategies: The bond designers claim the Federal Government has put in place a sinking fund to cover potential shortfalls. However, inquiries show that the proposed sources-DisCo collections and revolving funds-are questionable. ”If such funds exist, why not use them directly to pay GenCos?”, some of the operators wondered.

Moreover, DisCo collections have historically been poor. GenCos should also recall that similar revolving funds promised through NBET stopped after the first Eurobond payment.”

Subsidies without cash backing blamed for rising debt

Stakeholders have blamed the Federal Government’s failure to back its electricity subsidy policy with actual cash payments for the rising debt in the sector.

Speaking on the issue, Chairman of the Electricity Consumers Association of Nigeria, Chijoke James, said that despite the sector’s poor performance, the government must honour its commitments.

“Consumers are unhappy with power sector operators, especially at the distribution level, because of poor service delivery.

”However, the government must keep its promises. Subsidies cannot simply be removed, as the experience of Band A customers shows that higher tariffs do not necessarily translate into improved supply.

“DisCos migrate customers to Band A arbitrarily without meeting their obligations. Many Band A customers do not receive the minimum 20 hours of daily supply required, yet continue to pay the higher tariff,” he said.
Energy expert, Prof. Yemi Oke, said the current subsidy regime is unsustainable.

“This is clearly unsustainable. It is undermining national development. Nigeria already owes GenCos over N4 trillion; adding another N2 trillion annually in electricity subsidies is not prudent.

“With these trends, how do we develop and sustain economic growth? This is not the path to prosperity. As an informed Nigerian, I will continue to oppose unsustainable electricity and energy subsidies, including the unresolved N4 trillion DisCo debts,” he said.

Speaking to Vanguard, Managing Director of Azura Power West Africa, Mr. Edu Okeke, said: “At the end of the day, it is still about money. GenCos are receiving about 38 per cent of their invoices. Has anything changed? The answer is no. As long as suppliers are not paid, no new investment will come in.”

Okeke warned that even with the proposed bond, debt will continue to accumulate if fundamental issues remain unresolved.

“As President Tinubu announced the N4 trillion bond, it is only a matter of time before another N4 trillion emerges. Last year, collections were around 40 per cent; this year, they are about 38 per cent,” he added.

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