Debts Without Light: Exposing the Structural Flaws Fuelling Nigeria’s Electricity Debt Crisis: Why Nigeria Must Reform the Nigerian Electricity Supply Industry (NESI)

By Nick Agule
Email: nick.agule@yahoo.co.uk
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Facebook: Nick Agule, FCA
24 February 2026

Overview

The recent directive by President Tinubu to scrutinise the financial claims within the power sector is a necessary and timely intervention. The debts reportedly owed to Generation Companies (GENCOs) must be subjected to rigorous verification. As with the former fuel‑subsidy regime, the current structure of the electricity market presents opportunities for overbilling, inefficiencies, and potential abuse. Several issues require urgent clarification and reform.

1. Concerns Regarding Take‑or‑Pay and Overbilling Risks

This is how the current system is working:

Some GENCOs are reported to operate under take‑or‑pay arrangements, where they invoice for full generation capacity regardless of actual evacuation by the grid. For example:

• A GENCO may generate 1,000 MW, but only 400 MW is evacuated due to transmission constraints.
• Distribution Companies (DISCOs) may only collect revenue for 250 MW due to network losses, theft, and inefficiencies.
• After DISCO deductions and NBET’s own retention, the GENCO may eventually receive payment for only 130 MW.
• The GENCO then records the remaining 870 MW as “debt owed.” i.e. 1000 MW generated but only 130 MW cash received!

This cycle repeats daily, resulting in large accumulated liabilities for power that was not fully utilised now claimed to be over N6 trillion!

2. Concerns About Capacity‑Based Payments

Some GENCOs reportedly secured even more favourable terms, where payment is required for contracted capacity irrespective of whether turbines were operated or electricity was generated. Under such arrangements:

• A power plant rated at 1,500 MW may receive payment for the full capacity even if no generation occurred.
• These accumulated charges are then classified as outstanding debts.

This raises critical questions about the origin of such agreements and the rationale for paying for unutilised or ungenerated power.

3. Key Questions That Must Be Addressed

a. Verification of Generation and Evacuation

• Which agency is responsible for supervising GENCOs’ output and validating the debts claimed?
• Can GENCOs provide verifiable evidence of actual generation, evacuation levels, and unutilised power?

b. Alignment of Generation With Grid Capacity

• Why do GENCOs generate beyond the grid’s evacuation capacity?
• If a plant has five turbines of 200 MW each but the grid can only wheel 400 MW, why operate all five turbines instead of two?

c. Risks of Overbilling

• Given past experiences with fuel‑subsidy fraud, is it possible that some GENCOs may be billing for power not generated?

d. Burden on Consumers

• How can a nation experiencing chronic electricity shortages be confronted with massive bills for power not delivered to end‑users?
• Which global power markets operate under similar arrangements?

4. Recommended Way Forward

a. Debt Audit and Verification

The President’s directive to audit DISCO‑related debts, resulting in a revised figure of N2.8 trillion, is a step in the right direction. GENCOs must now provide verifiable, independently audited evidence of power generated and supplied to justify their claims.

b. Review of the 2013 Power‑Sector Privatisation

The structural weaknesses and loopholes created during the 2013 privatisation must be revisited and corrected to prevent further accumulation of unsustainable liabilities. We had 1 NEPA (PHCN) prior to privatisation that supplied 7,000 MW. We now have 46 companies post-privatisation supplying 5,000 MW with frequent grid collapses. More costs, less power!

c. Market‑Driven GENCO Operations

GENCOs should operate under commercial principles:

• Revenue should depend on actual power sold and delivered.
• Payments for unutilised or ungenerated power should cease.
• As with private refineries, GENCOs should be incentivised to ensure their output reaches the market.

d. Transmission Sector Reform

The transmission network remains a major bottleneck. It should be unbundled and opened to private investment to expand wheeling capacity to at least 25,000 MW within 2- 3 years.

e. Reform of DISCO Ownership and Performance

Most DISCOs are in receivership and have failed to meet performance obligations. Their licences should be reconsidered.

Global utilities such as Siemens, GE, Schneider Electric, and E.ON possess the technical, managerial, and financial capacity to transform distribution networks.

Just as the telecommunications sector improved after private‑sector participation, similar reforms could eliminate the need for consumer ‑funded poles, transformers, cables and metres.

f. Comprehensive Sector Overhaul

Beyond debt reconciliation, the entire privatisation framework must be restructured to create a modern, investment‑ready electricity market capable of delivering reliable power to Nigerians.

g. States must come to the table

All 36 states must implement the electricity act to create their electricity markets to open up for private sector investments. It’s the surest way to boost their economies and wean themselves from big mama’s breastmilk (the Federation Account)

Nick Agule is an energy expert