Nigerian government to settle N4 trillion electricity debt owed to power companies

By: Chidozie Nwali

Nigerian president Bola Ahmed Tinubu has greenlight the approval for the issuance of government-back bonds of N4 trillion naira ($2.6 billion), be sold to investors; the proceeds will be used to settle long outstanding debts owed by the federal government to Nigeria’s electricity generation companies (GenCos), and gas suppliers. President advisers said on Tuesday.

The N4 trillion Naira electricity debt is a major liquidity crisis in Nigeria’s power sector, threatening its stability and operations.

According to a statement from the Special Adviser to the President on Energy, a team led by Wale Edun the minister of finance and coordinating minister of the economy, together with the minister of power Bayo Adelabu, has met with senior executives of GenCos to finalize full and final settlement agreements that balance fiscal realities with the financial constraints of the GenCos.

“These reforms go beyond liquidity,” said Mr. Edun. “They are about rebuilding the fundamentals so that Nigeria’s power sector works for investors, for citizens, and for the next generation. This is how we create the enabling conditions for sustained private investment and transform reliable power into a catalyst for economic growth.”

The primary entities owed this money are the GenCos and Gas Suppliers. GenCos are owed a combination of “legacy debt” (old arrears) and unpaid electricity subsidies. Electricity Distribution Companies (DisCos) are also owed a significant amount in subsidies.

The debt has severely strained the financial health of the GenCos, limiting their ability to pay for gas, maintain their plants, and invest in new capacity, which contributes to Nigeria’s persistent erratic power supply. 

Electricity tariffs charged to many consumers are below the actual cost of generation, transmission, and distribution. The Nigerian government is contractually obligated to pay the difference (the subsidy) to the GenCos via the Nigerian Bulk Electricity Trading Company (NBET), but these payments have fallen into arrears, creating the bulk of the debt.

“For the first time in years, we are seeing a credible and systematic effort by the government to tackle the root liquidity challenges in the power sector,” said Mr. Tony Elumelu, Chairman Transcorp Power.

In 2024, the government introduced a 35% cut in electricity subsidies and tariff hikes (especially for urban customers), expected to yield annual savings of N1.1 trillion (~$718 million). to help mitigate the debt crisis.

However, the latest deployment of government-backed bonds to settle outstanding debts signals a strategic reset of Nigeria’s electricity market. By restoring the financial health of power companies, it will enable new investment in generation capacity, modernize grid infrastructure, and deliver more reliable electricity to homes and businesses, creating a stronger foundation for industrialization, job creation, and inclusive economic growth.