By Anscella Obike
Nigeria’s electricity sector continues to grapple with deep-seated structural and financial challenges, with recent data indicating a sharp deterioration in its balance sheet. As the Federal Government advances plans to raise N1.23 trillion through a Power Sector Bond, total industry debt has climbed by more than 60 per cent, intensifying concerns about the sustainability of debt-led interventions and the overall health of the power market.
Industry reports show that outstanding obligations, largely owed to generation companies (GenCos), rose from about N4 trillion at the beginning of 2025 to approximately N6.5 trillion by the end of the year. The surge underscores persistent gaps between revenue collection and cost recovery, revealing chronic liquidity constraints across the electricity value chain.
Rising Debt and the Power Bond Strategy
In an effort to stabilise cash flows and clear part of the backlog of unpaid invoices, the Federal Government issued the first tranche of the Power Sector Bond in December 2025, raising N590 billion. The programme is expected to reach its full N1.23 trillion target by March 2026.
While the bond has provided short-term relief to power companies, analysts caution that borrowing alone cannot resolve the sector’s underlying weaknesses, particularly in tariff collection, revenue remittance, and governance.
“What we are seeing goes beyond a temporary liquidity squeeze,” an energy economist noted. “The problem is structural. Until the flow of money through the power value chain is fixed, the sector will continue to accumulate debt, regardless of how much it borrows.”
Payment Shortfalls Strain Generation
A key contributor to the growing debt burden is the widening gap between what GenCos invoice and what they eventually receive. Between May and October 2025, generation companies billed a total of N1.53 trillion but collected only N547 billion, about 36 per cent of invoiced revenue.
This shortfall has made it increasingly difficult for GenCos to meet basic operating costs, including gas supply, maintenance, staff salaries, and capital investment. The result has been constrained generation capacity, recurring outages, and a greater reliance by consumers and businesses on costly alternatives such as diesel generators.
Tariffs, Subsidies and Distribution Challenges
On the distribution side, the DisCos Remittance Obligation (DRO) framework requires distribution companies to remit a defined portion of their collections to the Nigerian Bulk Electricity Trading Company (NBET). In the third quarter of 2025, DisCos billed N706.6 billion and collected N570.3 billion, improving collection efficiency to 80.7 per cent.
Despite this progress, revenue levels remain insufficient to support the sector’s operational and investment needs. Government subsidies continue to bridge the gap between approved tariffs and cost-reflective pricing, but experts increasingly view the current subsidy framework as inefficient and fiscally unsustainable.
Industry Voices Raise Red Flags
Stakeholders across the sector have expressed concern about the implications of rising debt and weak cash flows. Chijoke James, Chairman of the Electricity Consumers Association, said the financial strain helps explain the slow pace of service improvement.
“Consumers pay tariffs but see little change in supply quality. The debt overhang shows why progress has been so difficult,” he said.
Energy policy expert Professor Yemi Oke described the existing subsidy regime as “unsustainable”, calling for more targeted and transparent reforms. Similarly, Edu Okeke, Managing Director of Azura Power West Africa, warned that persistent underpayment undermines investor confidence.
“If you are only paid a fraction of what you generate, investing further in the sector becomes almost impossible,” Okeke said.
Questions Surrounding the Power Bond
Beyond the sector’s operational challenges, some stakeholders have raised concerns about the structure of the Power Sector Bond itself. Critics argue that the instrument relies heavily on projected future cash flows and informal assurances, rather than robust, legally enforceable repayment guarantees.
While the bond may ease immediate liquidity pressures, analysts caution that it could create additional long-term fiscal liabilities if structural reforms are not implemented alongside the borrowing programme.
Meanwhile, as Nigeria enters 2026, the electricity sector stands at a critical juncture. With total debt estimated at N6.5 trillion, borrowing can offer only temporary relief. Sustainable recovery will depend on comprehensive reforms, including predictable and cost-reflective tariffs, improved revenue remittance, better-targeted subsidies, and stronger regulatory oversight.
Whether the N1.23 trillion Power Sector Bond marks a genuine turning point or merely postpones a deeper reckoning remains a question that industry stakeholders and electricity consumers alike will be watching closely.
