Nigeria’s Power Sector Crisis and the Government’s Debt Settlement Plan
Nigeria’s power sector has long struggled with a deep-rooted liquidity crisis, with debts owed to power generation companies (Gencos) and gas companies (Gascos) reaching staggering levels. President Bola Ahmed Tinubu has approved a N3.3 trillion payment plan aimed at resolving these long-standing obligations. This initiative is part of the Presidential Power Sector Financial Reforms Programme, designed to address the chronic financial challenges that have plagued the sector for over a decade.
The approval came after a final verification and reconciliation of legacy obligations accumulated between February 2015 and March 2025. The move is expected to significantly improve cash flow within the electricity market, particularly for Gencos and gas suppliers, who have faced prolonged payment delays that have constrained generation capacity and weakened overall system performance.
Historical Context and Structural Weaknesses
The roots of Nigeria’s mounting debt to Gencos can be traced back to the 2013 privatisation of the power sector. Under the current market model, Gencos sell electricity to the Nigerian Bulk Electricity Trading Plc (NBET), which in turn supplies Distribution Companies (Discos). However, chronic under-collection of revenue by Discos—due to poor metering, energy theft, and weak tariff enforcement—has meant that only a fraction of market invoices is ever settled. This has led to government subsidies to keep the sector afloat.
Compounding the issue is the government’s refusal to implement cost-reflective tariffs. Electricity prices have remained politically sensitive and often set below the actual cost of generation and supply, creating a persistent funding gap. As a result, NBET has been unable to meet its payment obligations to Gencos, leading to a build-up of debt now estimated at N6 trillion by the Gencos.
Cascading Effects on the Power Value Chain
The liquidity crisis has had cascading effects across the power value chain. Gencos, facing cash flow constraints, struggle to maintain plants or pay gas suppliers, leading to reduced generation capacity despite installed potential. Gas producers, wary of non-payment, have also limited supply to power plants, further worsening outages, especially in recent weeks.
This situation has eroded investor confidence and slowed much-needed investment in the sector. Unreliable grid supply has forced businesses and households to rely heavily on self-generation, raising production costs and contributing to inflationary pressures.
The N3.3 Trillion Payment Plan
According to a State House statement issued by presidential spokesman, Bayo Onanuga, the N3.3 trillion figure represents a full and final settlement of the debts, providing what the government described as a transparent and equitable resolution for stakeholders across the power value chain.
As part of the implementation, 15 power generation companies have already signed settlement agreements with the federal government covering a total of N2.3 trillion. The statement stressed that the government had so far raised N501 billion to kick-start the process, out of which N223 billion had been disbursed, with further payments ongoing.
The presidency expressed optimism that as funds begin to flow through the value chain, power generation will stabilise, leading to improved electricity supply to homes and businesses.
Broader Reform Agenda
Tinubu commended stakeholders for their role in resolving the long-standing issues and confirmed that a second phase of the programme was expected to commence later this quarter. The statement said, “President Bola Tinubu has approved the payment plan to finally settle the outstanding debts under the Presidential Power Sector Financial Reforms Programme.”
Special Adviser to the President on Energy, Olu Verheijen, emphasized that the initiative goes beyond debt settlement and is intended to rebuild confidence in the sector. Verheijen added that the plan formed part of a broader reform agenda that included ongoing metering initiatives and implementation of service-based tariffs aimed at aligning electricity pricing with quality of supply.
She stated that the government was also prioritising improved electricity access for businesses and industries, stressing that reliable power is critical to job creation and economic growth.
Current State of Nigeria’s Power Sector
Despite an installed generation capacity officially put at about 13,000 megawatts (MW), Nigeria’s actual available capacity typically fluctuates between 4,000 MW and 5,500 MW, depending on gas supply, grid stability, and plant conditions. In practice, Nigeria’s average daily generation often hovers around 4,000 MW, for a country of over 200 million people. By comparison, South Africa, with roughly a quarter of Nigeria’s population, regularly generates over 20,000 MW.
On a per capita basis, Nigeria produces roughly 20-25 watts per person, far below the global average, which exceeds 1,000 watts per person in industrialised economies.
Transmission remains a major bottleneck as the grid, managed by Transmission Company of Nigeria (TCN), has a wheeling capacity of about 8,000 MW, though it rarely sustains that level due to frequent system constraints and collapses. Nigeria has recorded multiple grid collapses annually, disrupting supply nationwide.
Distribution is even weaker. Nigeria’s 11 distribution companies collect only about 60-70 per cent of billed revenue on average. Aggregate Technical, Commercial and Collection (ATC&C) losses remain high, often above 40 per cent in some networks. This means a significant portion of electricity supplied is either lost, stolen, or unpaid for.
