The Nigerian power sector is teetering on the brink of collapse due to a severe liquidity crisis, with generation companies (GenCos) owed over N4 trillion in unpaid invoices. This staggering debt, comprising N2 trillion for power supplied in 2024 and N1.9 trillion in legacy debts, has left the GenCos struggling to operate and maintain power plants, threatening a nationwide blackout. The Association of Power Generation Companies (APGC) has issued a stark warning, stating that without immediate intervention, they can no longer guarantee a steady electricity supply. The core issue lies in the chronic underpayment for generated electricity, with GenCos receiving less than 30% of their monthly invoices. This has severely hampered their ability to meet financial obligations, invest in maintenance and upgrades, and procure the necessary fuel, particularly gas, for power generation. The APGC attributes this financial strain to the lack of a clear financing plan from the Federal Government, weak enforcement of power purchase agreements, and a flawed “waterfall arrangement” that prioritizes payments to other service providers at the expense of the GenCos.
The Minister of Power, Adebayo Adelabu, has acknowledged the government’s substantial debt to both GenCos and distribution companies (DisCos), totaling over N4 trillion. A breakdown reveals N2 trillion owed to GenCos as legacy debt, an additional N1.9 trillion for the 2024 electricity subsidy, and N450 billion owed to DisCos for the same subsidy. While the Minister’s office has expressed concern and pledged to address the issue, concrete action has been slow, further exacerbating the GenCos’ anxieties. The Minister’s Special Adviser, Bolaji Tunji, has indicated that the Ministry of Finance will soon take charge of settling the debt, but the timeline and specifics of this intervention remain unclear. This lack of clarity adds to the uncertainty and fuels the GenCos’ frustration, as they grapple with mounting operational costs and dwindling revenues. The delay in payment not only threatens the immediate stability of the power sector but also undermines investor confidence and jeopardizes long-term development.
At the heart of the GenCos’ grievances is the disparity in payment prioritization within the Nigerian Electricity Supply Industry (NESI). While other stakeholders receive full payment for their services, GenCos are often left with a mere 9% to 11% of their due invoices. This inequitable arrangement, coupled with the lack of firm contracts and a market dependent on “best endeavors” rather than securitization, has created a volatile and unsustainable environment for power generation. The GenCos have consistently invested in expanding capacity, meeting their contractual obligations despite facing systemic constraints and investor-unfriendly policies. However, the persistent lack of adequate compensation is threatening to cripple their operations and potentially lead to a nationwide shutdown. The GenCos have appealed for immediate government intervention to address the liquidity crisis, highlighting the potential national security implications of a power collapse.
The GenCos highlight several key factors contributing to the current crisis. These include the dramatic drop in the 2024 collection rate to below 30%, with no improvement expected in 2025. This severely impacts their ability to meet financial obligations. Further exacerbating the situation are high corporate income tax, concession fees, royalty charges, and new Financial Reporting Council (FRC) compliance obligations, all of which strain their already limited revenue. The 2025 government budget allocation of only N900 billion raises serious concerns about its adequacy to cover both arrears and future payments. The GenCos also point to the partial activation of contracts in the NESI, which took effect on July 1, 2022, along with the minimum remittance order, bilateral market declaration, and waterfall arrangement. Despite these measures, approximately 90% of GenCos’ monthly invoices remain unpaid, with no bankable securitization or financing plan in sight. The GenCos have expressed deep frustration that the power they generate is fully consumed without corresponding full payment, creating a financially unsustainable operation.
To prevent a complete system collapse, the GenCos have put forth a list of urgent demands to the Federal Government. Key among these demands is the implementation of a concrete payment plan to settle all outstanding invoices, along with a review of the current payment structure to ensure fair and timely compensation for generated electricity. They are also calling for a more robust enforcement of power purchase agreements and the establishment of firm contracts to provide greater stability and predictability in the market. Furthermore, they advocate for addressing the systemic constraints that hinder their operations, such as difficulties in gas procurement, transmission bottlenecks, and regulatory hurdles. Finally, they emphasize the need for a clear and sustainable financing plan that ensures the long-term viability of the power sector. The GenCos warn that failure to address these critical issues could have dire consequences for national security, economic growth, and public welfare.
Meanwhile, offering a glimmer of hope, Jennifer Adighije, the Managing Director and CEO of the Niger Delta Power Holding Company of Nigeria (NDPHC), has indicated that President Bola Tinubu is intervening to resolve the liquidity crisis. Adighije believes the core problem lies in cash flow and is optimistic that with sufficient funds, the sector can procure more gas and increase generation capacity. She revealed that President Tinubu has promised interventions to provide the necessary cash backing to secure additional gas resources, which are crucial for thermal power plants. Adighije stressed the NDPHC’s mandate to scale power generation, transmission, and distribution capacity, emphasizing their focus on this objective despite the current challenges. Her recent recognition as “Young Achiever of the Year” at the 2025 Energy Times Awards underscores her commitment to improving the power sector. While the government’s promises offer some encouragement, concrete actions are needed to address the immediate liquidity crisis and implement long-term solutions to ensure a stable and sustainable power supply for Nigeria.
