The Federal Government’s plan to issue up to N4 trillion in government-backed bonds to settle legacy debts owed to electricity generation companies (Gencos) and gas suppliers has triggered concerns over its risky debt-for-debt strategy.
At the heart of the initiative is a strategic move to convert long-standing IOUs within the electricity market into tradable, FGN-guaranteed securities.
This shift is designed to stabilise liquidity in the electricity value chain, restore investor confidence, and resolve decade-old cash flow disputes that have crippled power generation and supply.
However, while some analysts welcome the plan as a pragmatic fiscal solution to an intractable problem, others warn it could entrench structural market failures, deepen public debt, and create long-term liabilities for taxpayers.
According to a term sheet reviewed by Naijaonpoint, the bonds are being issued by NBET Finance Company PLC, with full sovereign guarantee from the Federal Government of Nigeria.
The sponsor of the transaction is the Nigerian Bulk Electricity Trading Plc (NBET), while CardinalStone Partners is acting as the lead issuing house and financial adviser.
The bond issuance has a programme size of N4 trillion, with Phase 1 already underway. The government plans to raise N1.23 trillion between November and December 2025, split into two tranches:
The non-cash bonds provide Gencos with liquidity options without requiring immediate cash payouts from the government, and the issuer reserves the right to expand these allocations to Gencos up to the approved N1.23 trillion ceiling for Phase 1.
The bonds have a 7-year tenor with semi-annual interest payments and a fixed coupon rate. The pricing will reflect the yield on a comparable 7-year FGN Bond plus a market spread.
Nigeria’s power sector has long suffered from a broken payment structure. Gencos frequently complain of unpaid invoices from NBET, which in turn blames Distribution Companies (Discos) for failing to remit full payments.
Discos cite tariff shortfalls, poor collection efficiency, and technical losses as major barriers to meeting obligations.
Data from the Nigerian Electricity Regulatory Commission (NERC) shows that in September 2025, Discos billed only 86.4% of energy received, losing 13.6% to energy theft or metering gaps.
Worse still, only 81.25% of the billed amount was collected, indicating an Aggregate Technical, Commercial and Collection (ATC&C) loss of over 30%.
This structural inefficiency creates a liquidity squeeze that flows upstream as Gencos can’t pay gas suppliers, gas suppliers cut off fuel, and generation capacity dips.
The bond issuance seeks to interrupt this cycle by injecting liquidity and enabling Gencos to meet immediate obligations.
According to Olu Verheijen, the Special Adviser to the President on Energy, the bond is part of the broader Presidential Power Sector Debt Restructuring Programme, which was approved by President Bola Tinubu and ratified by the Federal Executive Council (FEC) in August 2025.
According to Olu Verheijen, the Special Adviser to the President on Energy, the bond is part of the broader Presidential Power Sector Debt Restructuring Programme, which was approved by President Bola Tinubu and ratified by the Federal Executive Council (FEC) in August 2025.
Verheijen disclosed that the bonds will help clear verified arrears to generation and gas companies and are intended to restore financial stability to a sector that has deterred investment and stalled energy reform efforts.
She emphasised that the bonds are fully government-guaranteed and amortising, meaning repayment will occur gradually over time, easing fiscal pressure.
Despite the policy intent, the bond programme has sparked criticism among former regulators and financial analysts.
Dr. Sam Amadi, former Chairman of NERC, questioned the logic of using public debt to resolve market obligations. “These are market debts. Why is the government stepping in with sovereign guarantees before a full review of how the debts were incurred?” he asked.
Amadi warned that recurring bailouts would encourage market complacency and reduce the pressure on Discos and NBET to operate efficiently.
“When I was Chairman of NERC, I rejected a proposed N5 billion injection into the Afam power plant. Markets should be allowed to function, and debts should be settled through transparent regulatory processes,” he said.
For Dr. Biyi Ogunmodede, a power sector analyst at Nexton Consulting Ltd, the bond plan appears to be “using debt to pay debt”. He acknowledged the potential short-term benefits but flagged concerns about sustainability.
“The bond market is not a magic wand. You still have to service the debt. If Discos don’t improve performance and tariffs are not restructured, you’ll end up with another round of unpaid market obligations,” he noted.
Ogunmodede argued that liquidity support must go hand-in-hand with deeper sector reform, including tariff rationalisation, Disco recapitalisation, and improved regulatory enforcement.
In a policy brief shared with Naijaonpoint, Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), urged the government to embed accountability, verification, and transparency mechanisms into the bond programme.
Yusuf warned that Nigeria’s experience with subsidy regimes shows how well-intentioned interventions can be hijacked or poorly implemented.
“There is an urgent need to subject all claims to rigorous audit and ensure that settlement is based on verifiable liabilities,” he said.
He also advocated for a phased transition to cost-reflective tariffs, supported by targeted social protection for low-income households. In addition, Yusuf called for performance-linked reforms for Discos, including loss reduction targets, technical upgrades, and capital injections where necessary.
The Federal Government has confirmed that implementation frameworks for the bond programme have been finalised, following high-level meetings with Gencos and key sector stakeholders in October 2025.
Officials reviewed the modalities for clearing verified arrears and laid out a timetable for phased payments.
According to Ministry of Power insiders, the bond will be issued in tranches aligned with ongoing verification audits of market claims.
The government hopes the successful issuance of the first N1.23 trillion will establish a blueprint for market discipline, setting the stage for subsequent reforms in tariff regulation, market operations, and investor governance.