THE Federal Government’s bond issuance to offset the first tranche of over N5 trillion in debts owed to power generation companies (GENCOs) has raised questions about power sector financing and solving legacy debt problems in Nigeria’s power sector.
The Nigerian power sector was privatised in 2013 but has been enjoying subsidy interventions from the Federal Government to avoid collapse.
The interventions consist of occasional tariff suspension, the Federal Government’s metering intervention programme, and payment assurances to generation companies supplying gas to the power grid by the Nigerian Bulk Electricity Trading Company (NBET).
Despite these subsidies, the sector beckons for help with the recurring collapse of the electricity grid, raising many questions about the sector’s stability, post-privatisation.
The subsidies have also exposed the fragility of the sector’s financing and liquidity issues, prompting investment apathy in the sector.
“What we have done with the GENCO’s N501 billion debt offset is a balance sheet reset. We cleared legacy obligations and re-established conditions which operators can plan, operate, and invest in commercial terms,” the Special Adviser to the President on Energy, Olu Veheijen, said in reaction to the bond issuance.
Veheijen explained that the bond issuance was part of the Presidential Power Sector Debt Reduction Programme (PPSDRP) and had achieved full subscription, reflecting strong investor confidence in the reform agenda.
She noted that the funds would be used to settle verified receivables for electricity supplied between February 2015 and March 2025, with 14 GenCos signing Full and Final Settlement Agreements.
The government aims to address these issues through broader financial and structural reforms, including tariff adjustments and improved collection efficiency, Veheijen said.
The Senior Vice President of Investment Banking at Cardinal Stone, Onyebuchim Obiyemi, who had an insider knowledge of GENCO’s bond, also said, “The Federal Government seeks to ring-fence the debts of GENCOs, with an assurance that investors can recoup their money and build confidence in power sector investment.
“The debt instruments are structured as an amortisation bond such that investors get a portion of their interest and principal sum every six months of the payment cycle. This is absolutely different from the normal government bond. The government is willing to win back investors in the power sector,” she said.
She stressed that the structural payment of interest in the bond issuance and the ring-fencing of the debt is an assurance that the power sector could attract investors.
The ICIR reports that there has been apathy by investors in the power sector as a result of political interventions in tariff matters, which upsets distribution and generation companies.
Despite this progress, legacy problems in the electricity sector persist, including chronic liquidity shortfalls and unresolved liabilities.
A report by The ICIR shows that the World Bank and the African Development Bank intervene in Nigeria’s power sector and have pumped in over $1.5 billion. This has failed to translate into a constant power supply, as the electricity supply to Nigerian homes still hovers around 4,500 megawatts.
Federal Government had raised N501 billion from the bond market to settle outstanding debts owed to power generation companies (GenCos), aiming to reduce about N5.6 trillion liabilities in the sector.
This move is expected to improve liquidity for GenCos, strengthen their ability to meet operating and debt obligations, and unlock new investments.
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.