GenCos’ $6 Trillion Debt and State Electricity Markets Shaped Nigeria’s Power Sector in 2025

In 2025, the Nigerian Electricity Supply Industry (NESI) grappled with persistent challenges, including poor power supply, ageing infrastructure, and liquidity constraints. Yet, two key developments dominated the sector: the Federal Government’s mounting ₦6 trillion debt to power generation companies (GenCos) and the growing push by state governments to establish independent electricity regulatory commissions and markets.

The unresolved debt crisis continued to strain GenCos’ finances, limiting their ability to maintain infrastructure, expand capacity, and meet obligations to gas suppliers and lenders. Meanwhile, following constitutional reforms, more states sought to regulate electricity generation, transmission, and distribution within their jurisdictions, creating a decentralized electricity market framework.

Together, these issues shaped policy debates, regulatory interventions, and investment discussions throughout the year.

Federal Government Moves to Settle GenCos Debts

In March, the Minister of Power, Chief Adebayo Adelabu, pledged that the Federal Government would pay approximately ₦3 trillion of the outstanding GenCo liabilities, combining cash payments and financial instruments to ease 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. … While I would not say it should be paid 100%, we will be paying it down gradually. … 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 … between now and the end of the year, we are going to pay close to N3 trillion out of these N4 trillion.”

Following the pledge, meetings were held between GenCo owners and President Bola Tinubu, with the Federal Executive Council approving discussions on a repayment framework. However, GenCos resisted a government proposal requesting they forfeit 50% of the debt as final settlement. In December, Special Adviser on Energy, Olu Verheijen, announced that Phase One of a ₦1.23 trillion bond would be issued to partially address legacy debts.

States Take Centre Stage

2025 also saw a push by states to leverage the Electricity Act 2023, which placed electricity on the concurrent legislative list. Eleven states received approval to establish electricity regulatory commissions, with Enugu, Ekiti, Ondo, and Imo taking formal regulatory control.

The move generated controversy, notably when the Enugu Electricity Regulatory Commission (EERC) reduced tariffs—an action opposed by operators and NERC, which argued the state lacked authority to fix tariffs without a full state-based generation framework.

Grid Reforms and NISO Launch

The Federal Government unbundled the Transmission Company of Nigeria (TCN) into the Transmission Service Provider (TSP) and the Nigerian Independent System Operator (NISO). NISO, operational from September, took over system and market operations, while TSP maintained physical transmission infrastructure.

Stakeholder Assessment

Speaking to Vanguard, Edu Okeke, Managing Director of Azura Power West Africa, said the sector recorded little progress due to liquidity issues.

“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 … as long as suppliers cannot be paid, no new investment will come in.”

Similarly, Dr Joy Ogaji, Executive Director of the Association of Power Generation Companies (APGC), acknowledged modest operational gains but stressed that structural challenges persisted, including fuel insecurity, transmission bottlenecks, and grid instability.

Analyst Lanre Elatuyi noted that electricity supply showed no significant improvement, citing high transmission losses and weak distribution networks, with ATC&C losses averaging about 40%.

Outlook for 2026

Stakeholders expressed cautious optimism for 2026, hinging on the resolution of GenCos’ debts and implementation of the ₦700 billion metering programme. Okeke called for restructuring of distribution companies, many of which operate with negative shareholder funds, estimating $10 billion in annual investment is required to reach full potential.

Dr Ogaji stressed that bond issuance alone would not guarantee sustainability:

“The outlook for 2026 is cautiously optimistic, with expectations largely anchored on the successful issuance and transparent deployment of the proposed ₦1.23 trillion government bond. … 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.”

Elatuyi added:

“I expect the Federal Government to come out categorically on the subsidy regime … and for the regulator and NISO to develop a framework for the Wholesale Electricity Market and how state-regulated entities will participate.”

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