The Nigerian power sector is teetering on the edge of a financial meltdown as electricity generation companies (GenCos) warn of imminent shutdowns due to unpaid subsidy debts. Despite commitments from President Bola Tinubu’s administration to resolve these challenges, only N371 billion—representing just 19.5% of the N1.9 trillion subsidy deficit—has been settled by the Federal Government.
GenCos Raise Alarm Over Financial Crisis
In a letter to the Financial Reporting Council of Nigeria (FRCN), GenCos disclosed that the imposition of new taxes on power companies could trigger an electricity tariff hike. According to documents from the Nigerian Electricity Regulatory Commission (NERC), over 99% of the N762.1 billion received by GenCos in 2024 was sourced from electricity distribution companies (DisCos), which themselves faced a revenue shortfall of N155 billion.
Between January and November 2024, GenCos issued invoices totaling N2.7 trillion. However, only N762.1 billion was paid, leaving a staggering debt of N1.94 trillion. The data indicates that the sector’s overall payment rate was a mere 28.18%, underscoring severe revenue collection inefficiencies.
Severe Revenue Shortfalls Threaten Power Stability
A breakdown of monthly invoices paints a grim picture:
- January’s N256 billion bill saw only 9.46% payment.
- February’s N208 billion bill had a 9.29% settlement rate.
- March’s N235 billion bill received a 9.34% payment rate.
- April saw a temporary surge, with N213 billion settled at 40.91%.
- November recorded the highest settlement rate of 39.05%.
Despite gradual improvements in payment rates, GenCos are struggling to keep power plants operational. Over 26,160 megawatts (MW) of generated electricity remain stranded due to liquidity constraints, with power plants producing between 3,900MW and 4,900MW—far below the 6,000MW benchmark for Band A tariff adjustments.
Government’s Subsidy Debt and Market Inefficiencies
NERC’s 2024 report highlights that GenCos billed N2.972 trillion for electricity supplied, yet only N155 billion of the outstanding amount was linked to market inefficiencies caused by DisCos. The remaining N1.94 trillion originated from unfunded government subsidies, as consumer tariffs failed to cover production costs.
Although the government allocated N450 billion in 2024 to cover subsidy shortfalls, most of this was used to settle 2023 arrears, leaving 2024’s financial gap unresolved. The Nigerian Bulk Electricity Trading (NBET) company contributed a mere N371 million towards the 2024 deficit, covering just 0.019% of the outstanding amount.
Stakeholders Demand Urgent Intervention
A letter addressed to Minister of Power Adebayo Adelabu and signed by the Chairman of the Board of Trustees of the Association of Power Generation Companies (APGC), Sani Bello, emphasized the critical need for government intervention. The letter, dated February 17, was also copied to the Chief of Staff to the President, the Governor of the Central Bank of Nigeria (CBN), and the Acting Managing Director of NBET.
The letter warned that NBET’s remittance rate of under 30% for electricity sold to DisCos is unsustainable, making it nearly impossible for GenCos to operate efficiently. In response, power sector operators have demanded:
- Immediate implementation of a mechanism ensuring 100% payment of GenCos’ invoices by NBET.
- Full settlement of GenCos’ historic market debts.
Tax Burdens Further Strain the Power Sector
GenCos have also raised concerns over the financial impact of Section 33, Subsection 1 of the FRC Act (Amended) 2023, which mandates annual levies based on company turnover. They argue that multiple federal and state-level taxes—such as corporate tax (30%), education tax (3%), newly introduced police tax, land use charges, and various state and local levies—are further worsening their financial distress.
According to NERC’s February 2024 report, most power plants in Nigeria are on the verge of collapse due to these financial burdens, necessitating immediate government action.
Conclusion
Without urgent intervention, Nigeria’s power sector risks widespread shutdowns, leading to severe electricity shortages. Industry stakeholders stress the need for a sustainable funding framework to ensure uninterrupted power supply and financial viability.
Nigerian Electricity Regulatory Commission (NERC) Report 2024
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