•$10bn annual investment required to revive sector, Azura MD

By Obas Esiedesa, Abuja 

In 2025, despite persistent challenges of poor power  supply, ageing infrastructure and deepening illiquidity, the Nigerian Electricity Supply Industry (NESI) was largely shaped by two defining developments: the mounting N6 trillion debt owed by the Federal Government to power generation companies (GenCos), and the growing push by state governments to establish electricity regulatory commissions and independent power markets within their jurisdictions.

The unresolved debt crisis continued to strain the financial health of GenCos, limiting their capacity to invest in maintenance, expand capacity and meet obligations to gas suppliers and lenders. At the same time, the decentralisation of electricity regulation following constitutional reforms gathered momentum, as more states moved to assert control over electricity generation, transmission and distribution within their territories.

Together, these twin issues dominated policy debates, regulatory interventions and investment discussions across the sector, underscoring both the depth of NESI’s structural challenges and the evolving nature of Nigeria’s power market architecture.

In March, the Minister of Power, Chief Adebayo Adelabu, pledged that the Federal Government would settle about N3 trillion of the outstanding liabilities to GenCos, debts that have since doubled, through a mix of cash payments and financial instruments aimed at easing liquidity pressures.

He explained: “Let me first explain that these debts are unpaid subsidies of the federal government, which is due to the power generating companies. Almost half of it was inherited. While about half of it came from 2024 operations. And I agree with you, there was a publication in the paper where the companies threatened to shut down their plants. I pray not. There are plans underway to make these payments.

“While I would not say it should be paid 100%, we will be paying it down gradually. And the mode of payment is in two ways. We have some budgetary provisions, which will facilitate cash payments. While we are also discussing with the generating companies to give them some guaranteed debt instruments, like a promissory note, which we will give to them to pay them to defray some of these debts.

“These promissory notes will be liquid enough for it to be taken to the banks for discounting if they need immediate cash injection. So, it’s a combination of cash payment and promissory notes. And I can tell you that between now and the end of the year, we are going to pay close to N3 trillion out of these N4 trillion”, he stated.

The promise led to a meeting between GenCo owners and President Bola Tinubu in July. Following Federal Executive Council (FEC) approval in August, senior government officials met GenCos again in early October, with the Special Adviser to the President on Energy, Mrs Olu Verheijen, announcing that an agreement had been reached on a repayment framework.

However, industry sources disclosed that on October 16, 2025, the government issued draft contract documents to GenCos, requesting that they forfeit 50 per cent of the outstanding debt as final settlement—a proposal the companies have continued to resist.

Verheijen later revealed in early December that the government had agreed to issue Phase One of a N1.23 trillion bond to partially address the legacy debts.

States take centre stage

Beyond federal liabilities, 2025 also saw heightened activity at the subnational level, as states moved to leverage the Electricity Act 2023, which placed electricity on the concurrent legislative list.

About 11 states received approval from the Nigerian Electricity Regulatory Commission (NERC) to establish electricity regulatory commissions, with regulatory oversight formally transferred to Enugu, Ekiti, Ondo and Imo states.

The decentralisation drive was not without controversy. The Enugu Electricity Regulatory Commission (EERC) rattled the industry after announcing a tariff reduction, a move opposed by electricity operators and NERC, which argued that the commission lacked the authority to fix tariffs without a state-based generation framework established under Enugu law.

Grid reforms and NISO take-off

In a bid to improve grid reliability, the Federal Government unbundled the Transmission Company of Nigeria (TCN) into the Transmission Service Provider (TSP) and the Nigerian Independent System Operator (NISO).

NISO formally commenced operations in September, assuming responsibility for system and market operations, while the TSP retained control of physical transmission infrastructure.

Stakeholders assess 2025 performance

Speaking to Vanguard, the Managing Director of Azura Power West Africa, Mr Edu Okeke, said 2025 recorded little progress, as entrenched liquidity challenges persisted.

“At the end of the day, it is still about money. GenCos are receiving about 38 per cent of their invoices. Has anything changed? The answer is no, because as long as suppliers cannot be paid, no new investment will come in,” he said.

Okeke warned that even with the proposed bond, debt accumulation could continue if underlying issues remain unresolved.

 “As President Tinubu announced the N4 trillion bond, it is only a question of time before another N4 trillion manifests. Last year, collections were around 40 per cent; this year, it is about 38 per cent,” he added.

On her part, the Executive Director of the Association of Power Generation Companies (APGC), Dr Joy Ogaji, acknowledged modest operational gains but stressed that deep structural problems endured.

“In 2025, the power sector recorded modest but notable improvements, particularly in generation availability and capacity utilisation during parts of the year,” she said.

She noted that improved gas supply arrangements and completion of critical maintenance reaffirmed the technical capacity of GenCos, but persistent liquidity constraints, fuel insecurity, transmission bottlenecks and grid instability continued to undermine sustainability.

“Policy reforms under the Electricity Act 2023 provided clearer direction, but gains largely remained at the level of potential rather than full execution,” Ogaji stated.

Also commenting, power sector analyst Mr Lanre Elatuyi said electricity supply to consumers showed no significant improvement.

“While states have been empowered to legislate on electricity, many remain unprepared. Even among states granted regulatory autonomy, progress has been limited,” he said.

He cited stagnant generation levels, high transmission losses, and weak distribution networks, with aggregate technical, commercial and collection (ATC&C) losses still averaging about 40 per cent industry-wide.

Expectations for 2026

Looking ahead, stakeholders expressed cautious optimism for 2026, hinting largely on the effective resolution of GenCos’ debts and the implementation of the Federal Government’s N700 billion metering programme.

Okeke called for a fundamental restructuring of the distribution segment, noting that many DisCos operate with negative shareholders’ funds. He estimated that the sector requires about $10 billion in annual investment to reach its full potential.

“The biggest problem we have in the sector is that investors who previously invested are being made to look like they are greedy. It’s now discouraging new ones from investing. People invest to make money.“You know, it’s only in Nigeria that you can be running a utility with negative shareholder funds. It’s not done. You know, everybody talks about Nigeria and Telecom. When MTN came into Nigeria, besides the $325 million they used to buy licences, they invested more than $1 billion before they even made the first call on the network.

“The problem with the private sector is that the owners of all the distribution companies, what money has gone into that network? Have they changed transformers? Have they had money to invest and strengthen the network? It hasn’t been done. Money has not come into the sector since privatisation. 

That’s the root cause of the whole thing. We have to find a way of getting the right investors. I mean, if those that are there right now cannot do it, let’s dilute them and get people who can invest”, he added.

Dr Ogaji on her part stated that the government has to take a holistic look at the sector, stressing that bond issuance alone would not guarantee the sustainability of the sector. 

“The outlook for 2026 is cautiously optimistic, with expectations largely anchored on the successful issuance and transparent deployment of the proposed N1.23 trillion government bond. If effectively executed, the bond is expected to significantly reduce legacy market debts owed to GenCos and gas suppliers, improve liquidity, stabilise balance sheets, and restore investor and lender confidence across the value chain. 

“A key expectation is improved fuel security, as the settlement of gas-related arrears should enable more stable and enforceable gas supply arrangements. Improved liquidity is also expected to support better plant availability, more effective maintenance planning, and higher capacity utilisation. While transmission constraints are unlikely to be fully resolved in the near term, ongoing investments and improved system coordination could deliver incremental improvements in grid reliability and revenue certainty. 

“Nevertheless, GenCos emphasise that the bond alone will not be sufficient to guarantee long-term sustainability. Its success will depend on strong governance, timely disbursement, improved remittance discipline, cost-reflective tariffs, strengthened gas-to-power frameworks, and continued investment in transmission infrastructure. If these complementary reforms are implemented alongside the bond, 2026 could mark the beginning of a more stable, predictable, and bankable operating environment for GenCos”.  

Also speaking, Elatuyi said: “As per my expectations in 2026, it depends on what we are looking at both at Federal level and also at State levels.

 “I expect the Federal Government to come out categorically on the subsidy regime so that the market can take shape. I also expect the regulator and NISO to come up with the framework for the Wholesale Electricity Market and how States regulated entities will play in the Wholesale market going forward.“

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