In a major policy and financial milestone for Nigeria’s long-beleaguered power sector, the Federal Government has commenced the structured settlement of its estimated N4 trillion legacy debt owed to electricity generation companies (GenCos), marking a crucial step toward restoring liquidity, investor confidence, and long-term viability in the electricity market.
Debt Resolution: A Historical Impasse
For over a decade, Nigeria’s electricity value chain has been weighed down by accumulated arrears owed by the government ( principally through the Nigerian Bulk Electricity Trading Plc (NBET) ) to power generation firms for electricity supplied to the grid. These arrears have consistently undermined GenCos’ balance sheets, discouraged private investment, and constrained operational capacity and reliability of supply.
The debts stem from payments owed for power delivered between February 2015 and March 2025, a period during which systemic weaknesses in tariff structures, liquidity shortfalls across the value chain, and chronic underpricing contributed to mounting liabilities.
Launch of the Presidential Power Sector Debt Reduction Programme
Under the Presidential Power Sector Debt Reduction Programme (PPSDRP) ( championed by President Bola Ahmed Tinubu ) the government has articulated a multi-instrument bond issuance strategy to tackle these legacy arrears in a structured, transparent and market-driven manner. The initiative was formally endorsed by the Federal Executive Council and designed to provide both fiscal credibility and financial support to the sector.
On 27 January 2026, the government successfully issued the first tranche of bonds ( a N501 billion Series 1 issuance ) under this programme, supported fully by institutional investors including pension funds, banks and asset managers. The issuance achieved 100 per cent subscription, signalling strong market confidence in the government’s reform agenda and capacity to honour its commitments to creditors.
Settlement Agreements with Five Generation Companies
As part of this first phase, five generation companies ( representing 14 power plants across the country ) have signed Final Settlement Agreements with NBET under negotiated terms. These firms include:
- First Independent Power Limited
- Geregu Power Plc
- Ibom Power Company Limited
- Mabon Limited
- Niger Delta Power Holding Company Limited (NDPHC)
Collectively, these agreements account for a total negotiated settlement value of approximately N827.16 billion, payable in four phased instalments, with payment for the initial phase funded by the recent bond proceeds.
Under the settlement framework, about N421.42 billion ( approximately 50 per cent of the negotiated amount) will be disbursed in a combination of cash and notes in the first and second instalments, easing immediate liquidity constraints for the participating GenCos.
Significance for the Electricity Sector
Finance Minister and Coordinating Minister of the Economy Wale Edun (represented at the ceremony by the Director-General of the Debt Management Office) described the initiative as a “critical turning point” in the power sector’s reform journey, emphasising that resolving these longstanding obligations is essential for revitalising commercial confidence and enabling future investment.
Officials, including the Special Adviser to the President on Energy, Olu Verheijen, framed the programme as a “decisive reset” — combining financial restructuring with broader sector reforms to strengthen fiscal discipline, restore payment certainty, and lay the foundation for more reliable electricity supply and expanded capacity.
For generation companies, settlement of legacy debts is expected to:
- Improve cash flow and operational stability, allowing for improved maintenance and investment planning.
- Signal renewed investor confidence, crucial for attracting both domestic and foreign capital into Nigeria’s electricity value chain.
- Support expansion projects, such as the second phase of the Egbin Power Plant, encouraging GenCos to scale capacity where demand is rising.
Broader Economic and Sectoral Impacts
Clearing legacy arrears is widely viewed as a prerequisite for systemic sector transformation. Analysts note that a more predictable and financially stable power market can:
- Encourage gas suppliers and financial institutions to engage more actively, since payment certainty can address supply chain bottlenecks.
- Set clearer expectations for Distribution Companies (DisCos) around performance and revenue collection, crucial for sector sustainability.
- Underpin improved reliability of electricity for households and businesses, stimulating economic activity and supporting industrial growth.
The government emphasises that the initiative is not a bailout but a strategic settlement mechanism, designed to relieve liquidity pressures without resorting to unstructured fiscal outlays. Aligning debt resolution with capital market instruments also demonstrates an effort to integrate market-based financial solutions in public sector reform.
Challenges and Next Steps
Despite the positive steps, structural challenges remain. Nigeria’s power sector continues to grapple with issues such as recurring grid collapses, inadequate transmission infrastructure, and ongoing demand for broader sector reform, indicating that debt settlement, while vital, is one component of a larger transformation agenda.
Moreover, while five GenCos have signed settlement agreements, several major players ( including some of the largest plants such as Egbin Power Plant (Lagos), Transcorp Power (Delta) and Shiroro Hydro (Niger State) ) have not yet concluded deals, which suggests that negotiation and phased engagement will continue in subsequent phases.
Conclusion: A Turning Point With Wider Implications
The Federal Government’s launch of the N4 trillion debt settlement programme, anchored in the successful N501 billion bond issuance and settlement agreements with five GenCos, represents a landmark effort to address one of the most persistent bottlenecks in Nigeria’s power sector. While implementation will unfold over time and must be complemented by structural reforms and investments, this initiative signals a renewed commitment to financial discipline, investor confidence and the long-term sustainability of Nigeria’s electricity market — all essential to achieving more reliable and commercially viable power for millions of Nigerians.