Buzzapp Master 
It is no longer news that the federal government owes the generation companies (GenCos) approximately ₦4 trillion for electricity generated and supplied to the national grid. This debt, accumulated over time through systemic inefficiencies and persistent market shortfalls, now poses a serious threat to the financial stability of GenCos and the broader Nigerian Electricity Supply Industry (NESI).
GenCos face severe cash flow constraints, declining capacity utilisation, and operational challenges due to mounting debt and inadequate compensation, threatening operational paralysis.
The federal government’s pledge to settle GenCos’ debts is welcome but only provides temporary relief. Industry stakeholders argue it doesn’t address deeper structural issues like tariff shortfalls and market inefficiencies.
Read also: The failure of the Nigerian power sector and implications for the economy
The Nigerian electricity market is plagued by structural inefficiencies that go far beyond the issue of unpaid debts. A fundamental challenge is the significant mismatch between the actual cost of delivering electricity and the revenue recovered through existing tariffs. While generation costs vary across technologies, such as gas, hydro, and solar, the current system faces challenges. Under the current Economic Merit Order Dispatch model, the weighted average cost of electricity generation ranges between ₦110 and ₦117 per kWh (as of Q4 2024), excluding ancillary costs.
While the move to settle GenCos’ arrears is unquestionably a positive and necessary step, it brings to the fore a more pressing question: will this move genuinely address the underlying liquidity crisis in the NESI, or is it merely a temporary palliative that postpones the much-needed structural reforms?
Most end-users’ tariffs are below cost-reflective levels, causing revenue shortfalls and financial distress for DisCos, exacerbated by legacy debts, high ATC&C losses, and revenue leakages.
Persistently high levels of ATC&C losses, exceeding 40 percent in some distribution zones, pose a serious threat to the financial sustainability of the Nigerian Electricity Supply Industry. These losses result from a combination of outdated and inefficient infrastructure (technical losses), unbilled or inaccurately recorded electricity usage (commercial losses), and poor recovery of billed revenues (collection losses). Collectively, they severely erode the sector’s revenue base, hinder cost recovery, and compromise overall market stability.
“The government must commit to timely payments and honour contractual obligations to prevent the accumulation of new debts to GenCos and other market participants.”
To tackle ATC&C losses, a holistic approach is needed, encompassing metering, infrastructure upgrades, revenue protection, regulatory enforcement, and digitalisation.
Ultimately, Nigeria’s power sector needs more than temporary fixes or reactive measures. Achieving lasting reform and financial sustainability will require the federal government to implement a bold, coordinated, and long-term strategy that tackles the fundamental drivers of the sector’s persistent liquidity challenges.
While settling outstanding debts owed to generation companies may provide short-term relief and temporarily stabilise electricity generation, it does not address the broader liquidity crisis. Meaningful and enduring reform must begin with restructuring tariffs to reflect the true costs of generation, transmission, distribution, and supply; improving overall market efficiency; and transforming DisCos into transparent, accountable, and financially viable entities.
Fiscal discipline is equally essential. The government must commit to timely payments and honour contractual obligations to prevent the accumulation of new debts to GenCos and other market participants. Simultaneously, performance-based regulation should be rigorously enforced throughout the electricity value chain, ensuring that GenCos, DisCos and other critical players are held accountable to clear and measurable service and financial performance targets.
Read also: TCN launch Committee to drive Power sector performance improvement plan
Government institutions must prioritise payment discipline, settling electricity bills promptly and in full to maintain sector liquidity and credibility.
Restoring investor confidence requires transparency, reliable data, and strong oversight, alongside aggressive reduction of systemic losses.
In conclusion, while settling GenCos’ outstanding debts provides short-term relief and may stabilise generation temporarily, Nigeria’s power sector cannot depend on bailouts as a lasting solution. The NESI’s liquidity crisis stems from deep-rooted structural and regulatory flaws that demand bold, sustained reform. Core priorities include implementing cost-reflective tariffs with targeted subsidies, enforcing payment discipline, particularly among public entities, reducing ATC&C losses, and transforming DisCos into transparent and accountable operators. Rebuilding investor confidence through clear policies and credible oversight is also crucial. Only a coordinated, market-wide approach can deliver a resilient, financially viable, and inclusive power sector.
Reforms, not bailouts, are the true path forward.
Francis Emechete, LLM is an Energy Lawyer.
GIPHY App Key not set. Please check settings