CNBC Africa
Nigeria’s electricity Distribution Companies are under mounting pressure to settle roughly 1.5 trillion naira in outstanding obligations to the Nigerian electricity market after the Nigeria Independent System Operator rejected repayment proposals submitted by some of the firms citing the size and age of the debts. Meanwhile, the Government is set to deploy more than 1.123 trillion naira raised through two bond issuances to address legacy obligations owed to electricity generation companies. Ayodele Oni, Partner at Bloomfield Law Practice joins CNBC Africa to discuss key developments shaping Nigeria’s electricity market.
- Nigeria’s electricity distribution companies are being pressed to settle about ₦1.5 trillion in market obligations after some repayment proposals were rejected over the age and size of the debt.
- The federal government plans to use more than ₦1.12 trillion raised through two bond issuances to tackle legacy obligations owed to electricity generation companies.
- Adele Oni of Bloomfield Law Practice said legacy debt has created illiquidity across the electricity value chain and threatens gas supply to power plants.
- He said clearing old liabilities will only work if the sector stops generating fresh arrears through tariffs that do not fully recover costs.
- Oni said stronger regulatory enforcement, better metering and service-based tariff reforms are needed to rebuild consumer and investor confidence.
- He added that gas commercialization, transmission upgrades and backbone infrastructure investment by government will be key to long-term power sector stability.
- Nigeria’s electricity distribution companies are under mounting pressure to settle about ₦1.5 trillion in obligations to the electricity market after repayment proposals from some firms were rejected.
- The federal government plans to deploy more than ₦1.12 trillion from two bond issuances to clear legacy liabilities owed to generation companies, in a bid to ease a cash crunch across the value chain.
- Adele Oni, a partner at Bloomfield Law Practice, said the immediate relief from settling old debts will matter only if the market stops creating fresh arrears each month.
- He said cost-reflective, service-based tariffs, stronger regulatory enforcement and investment in gas and transmission infrastructure will be critical to stabilizing the sector.
Nigeria’s electricity market is facing a renewed liquidity strain as distribution companies come under pressure to settle roughly ₦1.5 trillion in outstanding obligations, while the federal government moves to channel more than ₦1.12 trillion from recent bond issuances to clear legacy debts owed to power generation companies.
The fresh push comes after the Nigerian Independent System Operator rejected repayment proposals submitted by some distribution companies, citing the size and age of the debt, according to the interview. The dispute has sharpened concerns over cash flow in a market where unpaid invoices continue to weigh on generation, gas supply and network performance.
Adele Oni, partner at Bloomfield Law Practice, said the accumulation of legacy debt has deepened illiquidity across the power value chain and held back the sector’s ability to improve service delivery.
“As long as you have those debts in place, there’s illiquidity across the value chain,” Oni said. He added that gas producers periodically threaten to stop supply, a serious risk in a system where “80% or more” of Nigeria’s power generation is gas-fired.
That dependence means payment delays do not stay confined to one segment of the market. If gas suppliers are not paid, generation companies struggle to produce electricity, leaving transmission and distribution operators with less power to move and sell.
Oni said the government’s latest effort to address legacy obligations could mark one of the most credible interventions the sector has seen in years. Still, he warned that clearing old arrears alone will not fix the underlying problem if new debt continues to pile up every month.
“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. “The real test is whether the market stops generating new arrears every month.”
The government’s planned support is focused on obligations owed to generation companies, commonly known as Gencos, which have long argued that mounting receivables are undermining their operations and their ability to pay for gas. Oni said the process will first require verification of claims before settlement can begin.
“I think it’d be verification,” he said. “Parties will come up with proof. Once you can verify, then payment can properly start whichever way government structures it.”
That verification process is likely to be central to any near-term resolution. Legacy debt in Nigeria’s power sector has been disputed for years, with market participants often contesting the amounts owed, the timing of obligations and the treatment of subsidy shortfalls.
Oni said a durable solution will also depend on tariff reform. Unless tariffs better reflect the cost of supplying electricity, he said, the market will continue to generate fresh losses even after old liabilities are paid down.
“Unless tariffs are what they should be, you will continue to have this issue,” he said. He argued that tariffs should be cost-reflective while also remaining tied to service quality, a framework intended to improve payment discipline without asking consumers to pay more for unreliable supply.
That argument lands as policymakers weigh broader subsidy changes beyond Band A customers, who currently receive relatively higher service levels. Oni said any move to reduce or remove subsidy for other customer bands should be matched by improved service, better metering and stronger consumer confidence in the regulator’s enforcement actions.
He pointed to recent refund or credit actions linked to poor service delivery as a sign that enforcement can improve market credibility. According to Oni, when consumers see the regulator compel distribution companies to compensate customers for under-delivery, they become more willing to pay tariffs and investors become more willing to commit capital.
“Yes, of course, that’s the role of the regulator,” he said. “The regulator wouldn’t only, it shouldn’t only issue regulations.” He added that enforcement has historically lagged behind rulemaking in the sector.
The market’s liquidity problem is also closely tied to the gas value chain. Nigeria relies heavily on gas-fired generation, making fuel availability and transport infrastructure central to power supply. Oni said resolving bottlenecks will require both commercial incentives and regulatory pressure.
He pointed to the government’s gas flare commercialization program as one tool aimed at bringing previously wasted gas into productive use. The program is designed to channel flare gas into midstream and downstream projects, including compressed natural gas, liquefied petroleum gas and potentially power generation.
“For a long time, it was all about penalties, the stick,” Oni said. More recently, he said, the government has adopted a more commercial approach that allows gas that would otherwise be flared to be handed to companies that can use it in viable projects.
That “dual approach” of penalties and commercialization could help improve fuel supply over time, especially if supported by new infrastructure. Oni said gas transportation and distribution networks remain essential because private capital alone should not be expected to build national backbone infrastructure.
“The private sector is supposed to expand infrastructure and not necessarily build,” he said. In his view, core backbone assets should be led by federal and state authorities, with businesses then connecting to and extending those systems.
The broader transmission network also remains part of the equation. Oni noted that improving the infrastructure backbone, including support for gas transport and the transmission system, would make it easier for the power sector to scale more efficiently and lower costs over time.
He also said Nigeria’s evolving state electricity market structure adds another layer to tariff and subsidy reform. Following the Electricity Act, several states have moved to take greater control of their electricity markets, meaning future decisions on tariffs, subsidies and market support may increasingly be handled at the state level rather than solely by the federal government.
Oni said the law already requires a framework for handling such interventions, rather than leaving subsidies to ad hoc decisions. That, he suggested, will become more important as states expand their roles and as public-private partnerships help develop local electricity and gas infrastructure.
He cited infrastructure initiatives in states including Lagos, as well as major gas transport projects such as the Ajaokuta-Kaduna-Kano pipeline, as examples of how backbone investment could revive industrial activity, widen access to fuel and improve the economics of power supply.
For now, the immediate focus remains on whether the government can convert its bond-backed intervention into verified settlements and whether regulators can push distribution companies toward a credible repayment path. The longer-term challenge, Oni said, is ensuring the market does not fall back into the same cycle of under-recovery, weak enforcement and rising arrears