The Federal Government’s ongoing effort to settle legacy debts owed to Generation Companies (“GenCos”) represents one of the most significant interventions the Power Sector has witnessed in recent years. Through the Presidential Power Sector Debt Reduction Programme, the Federal Government seeks to restore liquidity, strengthen investor confidence, and stabilise the Gas-to-Power value chain by settling verified payment shortfalls that accumulated between 2015 and Q1 2025. The successful issuance of the inaugural ₦501 billion Power Sector Bond, with a second tranche of ₦729 billion reportedly planned for July 2026, signals a clear commitment to addressing the legacy debt that has undermined market stability for over a decade.
Yet, a critical question hangs over the industry: can the market achieve long-term viability while new liabilities continue to accumulate?
While the Government has described the Power Sector Bond programme as a strategic reset rather than another bailout, subsidy obligations continued to accrue throughout 2025. NERC’s quarterly reports indicate that the Federal Government incurred subsidy obligations exceeding N1.9 trillion in 2025 alone. However, media reports indicate that only ₦76.95 billion, representing about 4% of the total subsidy obligations in 2025, had been remitted despite budgetary provisions exceeding N900 billion. In effect, the Sector appears to retire historical debt on one end, while simultaneously creating a new generation of liabilities on the other.
This raises broader questions about the sustainability of the current market structure. Debt financing via bonds can temporarily sweep historical liabilities off the balance sheet, but it cannot substitute for a market framework that prevents those liabilities from recurring. Without timely reconciliation and settlement of subsidy obligations, liquidity constraints will inevitably persist across the value chain. To break this cycle, structural reforms must take precedence over financial firefighting.
The Association of Power Generation Companies’ call for quarterly reconciliation of subsidy invoices therefore merits serious consideration. Equally important is the ongoing conversation around the gradual transition to a fully cost-reflective tariff regime. However, tariff reform cannot proceed in isolation from service delivery. Persistent customer complaints that the Nigerian Electricity Regulatory Commission receives regarding Distribution Companies’ service levels continue to raise concerns about the effectiveness of the Service-Based Tariff framework. The Lagos State Electricity Market Report 2025 further reinforces these concerns. The report found that neither Excel Electricity Distribution Limited nor IE Energy Lagos Limited met the prescribed minimum supply and service standards for Band A customers in 2025, recording compliance rates of only 33.8% and 20.0%, respectively. Until service delivery consistently reflects the standards consumers pay for, the case for a fully cost-reflective tariff regime will remain contentious.
As preparations continue for the proposed ₦729 billion Power Sector Bond issuance, the policy objective should extend beyond the immediate relief of legacy debt. The Sector does not just need cash infusions; it requires durable institutional and financial mechanisms that ensure stakeholders reconcile and settle subsidy obligations promptly in the short term, while establishing a credible pathway towards eliminating subsidy dependence over time and holding underperforming utilities accountable. Until the Sector resolves this underlying structural mismatch between cost, tariff, and service delivery, each intervention risks becoming a temporary band-aid on a wound that continuously reopens.