President Bola Tinubu’s approval of a ₦3.3trn payment plan to settle long-standing debts in Nigeria’s electricity sector is being framed by the Federal Government as a decisive intervention to restore reliability and rebuild investor confidence.
Yet, beneath the headline figure lies a complex web of financial obligations, contractual disputes, and unresolved questions about the true scale of liabilities in the power sector.
What the government announced
Under the Presidential Power Sector Financial Reforms Programme, the Federal Government said it has verified ₦3.3trn as a “full and final settlement” of legacy debts accumulated between February 2015 and March 2025.
In a statement on Sunday, the presidency noted that 15 power plants have signed settlement agreements valued at ₦2.3trn, while the government has raised ₦501bn so far to fund the process. Of this amount, ₦223bn has already been disbursed, with further payments underway.
According to the Presidency, the intervention is designed to ensure that funds flow across the electricity value chain, particularly to power generation companies and gas suppliers, thereby stabilising electricity generation and improving supply reliability.
Special Adviser to the President on Energy, Olu Arowolo-Verheijen, said the programme is “not just about settling legacy debts” but about “restoring confidence across the power sector, ensuring gas suppliers are paid, power plants can keep running, and the system begins to work more reliably.”
How Nigeria’s power sector debt accumulated
Nigeria’s electricity sector has struggled with a persistent liquidity crisis since its privatisation in 2013. At the core of the problem is a structural mismatch between the cost of producing electricity and the revenue collected from consumers.
Electricity tariffs have historically remained below cost-reflective levels, while distribution companies have faced challenges in billing and revenue collection. This has resulted in chronic shortfalls, forcing the government to intervene through subsidies and payment assurances.
The market structure compounds the problem. Power generated by GenCos is sold through the government-backed Nigerian Bulk Electricity Trading Plc, which acts as an intermediary buyer before electricity is distributed to consumers.
When revenues from the downstream segment fall short, the shortfall cascades upstream, leaving generation companies and gas suppliers underpaid. Over time, these unpaid obligations accumulated into what is now referred to as “legacy debt.”
What the government is said to be owing
Industry stakeholders emphasise that the debts being discussed are not a single lump sum but a collection of contractual liabilities arising from Power Purchase Agreements (PPAs).
These obligations span multiple components, including unpaid invoices for electricity generated and consumed, capacity payments for power made available to the grid, and deemed capacity charges reflecting unused but contracted output.
They also include foreign exchange differentials caused by currency volatility, interest on outstanding payments typically benchmarked at NIBOR plus four percentage points, and gas supply costs, along with historical VAT obligations on gas transactions.
Additional liabilities arise from operational realities within the system. Power plants incur costs from frequent start-stop cycles, sometimes rising from about 20 times annually to over 365 times due to grid instability. There are also costs associated with ancillary services such as spinning reserve and black start capabilities, for which no clear tariff framework exists.
Generators are further required to operate under Free Governor Mode of Operation (FGMO), which places additional strain on equipment without corresponding compensation. Losses from low plant utilisation—often due to gas supply constraints or transmission limitations—also form part of the outstanding claims.
Taken together, these elements illustrate that what is being settled is not merely unpaid bills, but a complex bundle of contractual and operational costs embedded in Nigeria’s electricity market.
President of the Nigeria Consumer Protection Network, Kunle Olubiyo, has questioned whether the ₦3.3trn 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.
However, he pointed to what he described as a far larger burden arising from the post-privatisation era. According to him, debts owed to generation companies and gas producers alone are estimated at about ₦8 trillion, with additional capacity-related obligations of roughly ₦4trn, bringing the total to approximately ₦12trn.
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.
His intervention suggests that the government’s ₦3.3trn figure may represent only a portion of total sector liabilities, rather than a comprehensive settlement.
Concerns have also been raised by Joy Ogaji, Chief Executive Officer of the Association of Power Generation Companies (APGC), who questioned both the methodology and timing of the new figure.
Ogaji drew attention to an earlier development in which about ₦4trn was reportedly approved in July 2025 following a reconciliation exercise involving key stakeholders in March 2025.
“This raises more questions. Is this ₦3.3trn different from the ₦4trn 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 the ₦3.3 trillion figure.
“I spoke with the GenCos and they confirmed that after the March reconciliation, no other one has been done. So, how did the government get their figures from?” she said.
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 added.
Ogaji emphasised that the outstanding obligations are not discretionary but arise from enforceable contracts under PPAs. These include payments for energy supplied, capacity made available, and other technical and financial adjustments tied to the operation of power plants.
She warned that revising figures outside agreed reconciliation frameworks could undermine investor confidence and weaken contractual certainty in the sector.
The APGC has previously dismissed reports suggesting that lower figures represent final settlements, insisting that all obligations must be transparently reconciled in line with contractual provisions.
Beyond the size of the debt, stakeholders are also questioning how the government intends to settle the obligations.
Key uncertainties include whether payments will be made in cash, through promissory notes or bonds, or via phased disbursements over time. The mode of payment is critical, as only direct cash injections provide immediate liquidity relief to operators.
There are also broader concerns about data transparency, particularly the absence of publicly available details on how the ₦3.3trn figure was computed and what specific components it covers.
Will this translate to better electricity supply?
The Federal Government maintains that settling the debts will stabilise the power sector and improve electricity reliability.
There is some basis for this expectation. Improved cash flow to generation companies could enhance plant maintenance, ensure more consistent gas supply, and reduce the risk of operational shutdowns.
However, structural challenges remain. Transmission constraints continue to limit the amount of power that can be evacuated across the grid, while inefficiencies in the distribution segment—particularly in metering and revenue collection—persist.
As a result, any improvement in electricity supply is likely to be gradual and dependent on broader reforms beyond debt settlement.
The ₦3.3trn debt settlement plan represents a significant attempt to address one of the most critical bottlenecks in Nigeria’s power sector—liquidity.
However, as highlighted by industry experts, the initiative raises fundamental questions about the completeness, transparency, and credibility of the figures involved.
Until these questions are resolved and deeper structural reforms are implemented, the promise of reliable electricity, while more attainable, may remain uncertain.
