Nigeria’s Federal Government has unveiled plans to issue ₦4 trillion in government-backed bonds to settle long-standing debts owed to electricity generation companies (GenCos) and stabilise the troubled power sector. The move follows years of mounting unpaid invoices that threatened plant shutdowns and wider grid collapse.
At its core, the strategy is a debt-for-debt swap. Instead of paying the GenCos in cash, the government will issue long-term bonds that investors, including banks and pension funds can hold in exchange for cancelling existing liabilities. Proponents say this will restore liquidity, reduce the risk of widespread blackouts, and rebuild confidence across the energy industry.
However, critics from economic and financial circles are warning that this approach may carry serious fiscal risks. Rather than eliminating debt, the scheme essentially reshapes it, swapping short-term obligations for long-term ones. This has prompted scepticism about its effectiveness as a structural solution.
Why the Bonds Were Introduced
The power sector’s debt problems did not happen overnight. Years of incomplete tariff collections, unpaid subsidies, frequent gas supply disruptions, operational losses, and a dysfunctional payment waterfall left GenCos with mounting unpaid invoices. In some cases, companies were being paid as little as 9–11% of the amounts due, forcing them to take on commercial debt just to continue operating.
Industry leaders warned that failing to settle arrears could lead to plant retirements and rolling blackouts, which would ripple across factories, businesses, and households. This raised fears of broader economic disruption if electricity generation faltered.
Officials, including Nigeria’s Minister of Power, say that the bond initiative is part of a broader transformation strategy, including tariff reform, improved cost-reflective pricing, and long-term liquidity support measures. Early results from these reforms are said to have lifted power sector revenues significantly.
Concerns Over Debt Management
Despite these intentions, economists and debt watchers are urging caution. They note that with Nigeria’s overall public debt already on an upward trajectory, exceeding ₦152 trillion by mid-2025, taking on even more liabilities, even in bond form, may stretch fiscal space further.
The debt-for-debt approach also does little to address underlying sector inefficiencies. Without sustained reforms in tariff collection, gas supply reliability, and distribution company performance, the risk is that new debts will accumulate even after the bond issuance. Some experts warn that the government may end up in a cycle of borrowing to service existing obligations instead of generating new revenue.
Another point of contention is bond market appetite. While high yields may attract investors, heavy reliance on domestic borrowing can crowd out private sector credit and tilt pension funds and banks towards government paper instead of productive investments. In Nigeria’s case, pension fund holdings in government securities already dominate large portions of financial portfolios which can have knock-on effects for broader economic growth.
Government and GenCos Work Toward Implementation
Despite the debate, officials and GenCo representatives have agreed on frameworks to begin settling debts through the bond programme. This marks a significant shift from earlier standoffs, where companies threatened to shut down generation capacity due to unpaid bills.
The government has emphasised that only verified debts will be converted into bonds, and the process includes ongoing audits to ensure authenticity. It is also positioning other regulatory reforms alongside the bond plan to improve sector sustainability.
However, voices on both sides of the debate agree on one point: Nigeria’s electricity sector remains central to the country’s economic future. How the power bonds initiative unfolds could have lasting effects not just on the energy market but on investor confidence, fiscal balances, and industrial growth.
