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Nigeria’s electricity market is heading for another major financial squeeze after the Nigerian Independent System Operator (NISO) rejected repayment proposals submitted by some electricity distribution companies (DisCos) over their outstanding obligations of about N1.5 trillion.
The rejection, coming after a fresh engagement between NISO and the DisCos, has raised the stakes in the long-running debt crisis threatening liquidity across Nigeria’s electricity value chain.
Energy policy analyst and Partner, Bloomfield Law Practice, Mr. Ayodele Oni, said the size and age of the obligations underline the depth of the financial crisis confronting the market, warning that unpaid debts are now threatening the ability of power generators to pay gas suppliers and sustain electricity production.
According to Oni, the problem is no longer simply a dispute between the market operator and distribution companies. It has become a systemic liquidity crisis capable of disrupting the entire chain from gas producers and generation companies to transmission and distribution.
“As long as you have those debts in place, there’s illiquidity across the value chain,” Oni said.
He warned that the consequences could become particularly severe because Nigeria depends overwhelmingly on gas-fired generation.
“Gas producers periodically threaten to stop supply,” he said, stressing that about 80 per cent or more of Nigeria’s electricity generation is gas-fired.
The NISO rejection therefore puts renewed pressure on DisCos to come up with credible repayment arrangements capable of addressing the accumulated liabilities rather than proposals that merely stretch the problem further.
The development also comes at a critical moment for the Federal Government, which is moving to deploy more than N1.12 trillion raised through two bond issuances to settle legacy obligations owed to electricity generation companies (Gencos).
The government intervention is expected to inject much-needed liquidity into the market and ease the pressure on Gencos, many of which have struggled with mounting receivables and their ability to meet gas payment obligations. But Oni cautioned that paying off the existing debt would not, by itself, resolve Nigeria’s electricity market crisis.
He described the government’s intervention as one of the most credible measures taken to address the sector’s financial problems in years, but said its success would ultimately be determined by whether the market stops accumulating new debt.
“I think that what the government is doing now is the most credible good thing the government has done for the power sector in a decade,” he said.
“But the real test is whether the market stops generating new arrears every month.”
That, according to him, is where the NISO-DisCo dispute becomes critical.
Unless distribution companies are able to recover the cost of electricity supplied to consumers and meet their market obligations, he warned, the sector could return to the same debt trap even after government has spent more than ₦1 trillion clearing historical liabilities.
Oni said the immediate process of settling the legacy obligations would require proper verification of claims before payments are made.
“I think it’d be a verification. Parties will come up with proof. Once you can verify, then payment can properly start whichever way the government structures it,” he said.
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He stressed that the bigger challenge remains the structural imbalance in the electricity market, particularly the gap between the cost of supplying electricity and the revenue recovered from customers.
“Unless tariffs are what they should be, you will continue to have this issue,” he said.
Oni advocated a cost-reflective tariff regime tied directly to quality of service, arguing that consumers should not simply be asked to pay more without corresponding improvements in electricity supply.
He also called for stronger regulatory enforcement, better metering and greater accountability from DisCos, saying these measures would be critical to restoring consumer confidence and improving payment discipline.
For him, regulation must go beyond issuing rules and guidelines to ensuring that operators comply with service obligations.
“Yes, of course, that’s the role of the regulator. The regulator wouldn’t only, it shouldn’t only issue regulations,” he said.
He pointed to recent regulatory actions requiring DisCos to compensate or credit customers for failing to meet stipulated service levels as the type of enforcement needed to rebuild confidence in the electricity market.
According to him, when consumers see that poor service attracts consequences for DisCos, they are more likely to accept their own obligations to pay for electricity.
The debt crisis, however, extends beyond the relationship between DisCos and the market operator.
Oni said the inability of Gencos to receive payments affects their capacity to pay gas suppliers, thereby creating a chain reaction that can ultimately reduce electricity generation.
With gas-fired plants accounting for the overwhelming majority of Nigeria’s generation, he said gas supply security must be treated as a central component of electricity sector reform.
He identified the Federal Government’s gas flare commercialisation programme as one avenue through which additional gas could be brought into productive use.
“For a long time, it was all about penalties, the stick,” Oni said, noting that the government’s more commercial approach could encourage companies to develop projects around gas that would otherwise be flared.
But he said commercialisation alone would not be enough without adequate gas transportation infrastructure.
Oni argued that the government must continue to invest in strategic backbone infrastructure, particularly gas transportation and electricity transmission, while the private sector focuses on expanding and connecting to those networks.
“The private sector is supposed to expand infrastructure and not necessarily build,” he said.
He also identified transmission infrastructure as a critical constraint that must be addressed if Nigeria is to translate available generation capacity into reliable electricity supply.
