NIGERIA’s electricity sector liquidity problems are worsening as the power generation companies (GENCOs) have rejected the Federal Government’s proposal requiring them to accept 50 per cent of the total debt owed them for electricity supplied to the national grid.
The Executive Secretary of the Association of Power Generating Companies of Nigeria (APGC), Joy Ogaji, confirmed to The ICIR that proposed contracts from the Federal Government were sent out to each power generation company, except Azura Power West Africa.
In the proposal, tagged 50 per cent haircut, the government offered to pay the companies about N2.4 trillion or 49.9 per cent of the total debt.
Ogaji said the underpayment proposal, if enforced, would create huge damage to Nigeria’s power sector, discourage investors and possibly force most generating plants out of business.
“If the proposal sells through, this will kill the GENCOS completely,” she said.
She stressed that thw debt was not entirely GENCO’s money but included thermal plants and other players in the power generation value chain.
Notably, the government debt to the GenCos rose to over N5 trillion at the end of June, with President Bola Tinubu agreeing to pay off the debt through bond issuance during a meeting with the companies in July.
Ogaji expressed worry that rising debt had posed a serious liquidity problem to the power sector, which she said had deprived it of optimum service delivery.
The ICIR reports that GenCos operate thermal power plants that use natural gas to produce electricity.
They connect their power plants to the national grid, allowing them to transmit generated electricity to the Transmission Company of Nigeria (TCN) for distribution.
GENCos sell electricity to the Nigerian Bulk Electricity Trading (NBET) Plc, which acts as a creditworthy off-taker, ensuring payment to generators.
Following the approval of the proposal by the Federal Executive Council, FEC, in August, top government officials met with the owners of the GenCos in early October, with the Special Adviser on Energy, Olu Verheijen, announcing that an agreement had been reached with the companies on the debt repayment model.
In furtherance of this, the government, on October 16, 2025, sent out two contract documents to the GenCo, which, among other clauses, requested them to forfeit 50 per cent of the debt owed them as final payment.
Copies of the documents, sighted by The ICIR, was titled “NBET deed of settlement” and “Deed of novation”, among others, sought to transfer government debt from the Nigerian Bulk Electricity Trading Plc, NBET, to a new special purpose vehicle, named NBET Bond Finance Company Plc.
The contracts read: “GenCo, hereby, accepts the sum of (“Settlement Amount”) as the full and final settlement of the outstanding legacy debt, including any interest thereon and any other claim for losses, whether present or future and whether known or unknown, in respect of the legacy debt.
“For the avoidance of doubt, GenCo agrees that the settlement amount, as a compromise of its rights to the legacy debt, hereby (i.e., from the date of this Agreement), extinguishes its right to any claims to the legacy debt, including any contractual claims for losses whatsoever and howsoever, arising whether from deemed capacity, true ups and interest on delayed payment of substantive invoice amounts, true-up compensations or deemed capacity payments referenced in Appendix A or elsewhere.
“The parties agree that subject to prompt payment of the settlement amount as contemplated in the payment structure under Clause 3 below and Appendix B, the settlement amount shall not bear any interest or give rise to any further claims for any losses whatsoever.
“NBET’s obligation to pay the settlement amount to GenCo shall be novated to Bond SPV, via the Novation Agreement and upon its execution, Bond SPV shall be solely responsible for payment of the settlement amount.
“The parties acknowledge and are aligned on the PPSFRP’s plan for the settlement amount to be paid by Bond SPV solely from the outcome of an FGN-backed public bond issuance programme that will be conducted by the Bond SPV (“Bond Programme”).
“These bond proceeds are expected in successive issuance phases and tranches that will have an impact on the exact timeline for payment of the settlement amount in instalments (where applicable).
The ICIR reported that the Federal Government promised to sort out the outstanding N4 trillion debt payment in two ways: part of it in cash, and the rest through promissory notes, which are legal documents that act as a promise to pay money at a later date.
Without a proper financial strategy in the sector, findings have also shown that Nigeria’s power sector has relied on interventionist funds from the World Bank and the African Development Bank (AfDB) to pull itself out of various liquidity crises, since the sector’s privatisation in 2013.
There are several instances of World Bank support for the sector, including a $500 million loan in 2021 for the Nigeria Distribution Sector Recovery Program (DISREP), a $750 million facility approved in 2023 for the Power Sector Recovery Operation (PSRO) and Distributed Access through a Renewable Energy Scale-Up (DARES), and pledged support with 1.2 million meters in 2023 to address the metering gap.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.