Nigeria FG agreement with GenCos to settle N4 trillion debt
The Federal Government (FG) has reached a framework to address its N4 trillion debt owed to power generation companies (GenCos), an amount that has severely strained Nigeria’s power sector. The debt covers both legacy obligations and recent unpaid invoices for electricity supplied to the national grid. The government’s intervention seeks to stabilize operations and avert a systemic collapse of power generation across the country.
Minister of Power, Adebayo Adelabu, has disclosed that the government plans to settle a significant portion of this debt in cash, while the remainder will be cleared using promissory notes and other debt instruments. The agreement is intended to be implemented within the next six months.
Among the commitments is that the FG will pay at least N2 trillion of the total debt before year-end. This action is designed to reassure GenCos and supply continuity in the power sector, which has recently suffered from liquidity shortages, reduced maintenance, and infrastructure degradation due to the unpaid debts. Payment will be a mix of direct cash disbursements and guaranteed financial instruments such as promissory notes that can be used for bank discounting.
President Bola Ahmed Tinubu has thrown his support behind a bond programme valued at N4 trillion to address sector liabilities. Before this, the government has been validating claims from GenCos to ensure only verifiable debts are included in the bond issuance. The verification process includes reviewing power purchase agreements and gas supply agreements to ascertain legitimacy.
GenCos have raised alarms over how the debt has worsened operating conditions. They cite erratic cash flows, inability to replace or maintain equipment, high costs due to foreign exchange and inflation, and disruptions in gas supply. The deficiencies have led to threats of shutdowns and disruptions in electricity supply across various regions.
The FG has also emphasized that reforms will accompany payments, to ensure sustainability. These include pushing for cost-reflective tariffs (so that the price of electricity more closely matches its true cost), reducing inefficiencies, and incentivizing investment in infrastructure. Part of the strategy is to provide targeted subsidies for those who are economically disadvantaged, so the burden is not unfairly placed on vulnerable consumers.
