Expert Says Structural Issues Remain Existential Threat To Power Sector Growth

Despite efforts to improve Nigeria’s power sector efficiency there lies critical issues that need to be urgently addressed according to industry experts.

In the opinion of the associate director in the energy, mining and maritime practice at Andersen Nigeria, Timipre Tope, the industry is still experiencing structural challenges.

Though, he commended government’s efforts in addressing liquidity crises in the power sector through bond issuance but however warned of existing structural problems.

Tope, said government support was likely to bolster demand for the issuance after the first phase was delivered successfully.

“One thing about government bonds is that it’s kind of sovereign, it’s backed by the sovereignty of the nation, and people would believe very strongly in it,” Tope said in television interview, reported by CNBC Africa.

He said the size of the issuance amounted to a major financial intervention for the sector, but cautioned that the bond should be viewed as a temporary bridge rather than a permanent solution.

“It provides that liquidity relief for the legacy debts that we’ve always experienced within particularly the genco side of things, but it really doesn’t fix the structural issues,” he said.

Those issues include non-cost-reflective tariffs, collection inefficiencies across the distribution chain and arrears linked to gas payments, according to Tope. He added that operational discipline would also be critical, pointing to the need for enforcement across market participants.

The warning underscores a broader challenge in Nigeria’s electricity market, where debt accumulation has continued despite repeated interventions. Stakeholders cited in the interview said the debt backlog rises by about ₦1 trillion each year and currently stands at around ₦3.3 trillion, while verified obligations by government were put at about ₦4 trillion.

That debt overhang has weighed heavily on generation companies, which continue to produce electricity into a market where collections remain weak and settlement cycles are often incomplete. Analysts say the result is a system in which producers, distributors and gas suppliers remain under pressure even when funding support is provided.

Nigeria’s latest power sector bond closed for subscription Thursday, with the government-backed ₦728.9 billion issue offering returns of up to 17.95 per cent as government seeks to ease mounting legacy debt owed to electricity generation companies.

The fundraising marks the second phase of the power bond programme and arrives against the backdrop of persistent liquidity stress in the electricity market. Domestic investors have shown interest in the offer, helped by the relatively high yield and the appeal of a sovereign-backed instrument.

Tope said any plan to scale back electricity subsidies could help address some bottlenecks, but warned that a full withdrawal would need to take account of market readiness and consumer affordability.

“We must think about affordability. We must think about the readiness of the market to absorb the cost,” he said.

He said removing subsidies in one step may be difficult, especially given the political and economic sensitivities around electricity pricing. Nigeria has signaled the possibility of subsidy reforms in the power sector, but the timing and extent of any changes remain closely watched.

Tope also pointed to stranded capacity as one of the clearest near-term problems that policymakers could address. In the first half of the year, about ₦110 billion in stranded capacity was reported, he said, highlighting a mismatch between the electricity that generation companies can produce and what the rest of the system can evacuate, distribute and pay for.

He compared the situation to “a state-of-the-art factory” producing bread without roads to get it to market. In practical terms, he said, generation companies cannot simply halt production without risking wider blackouts, yet they also cannot store unused power.

That leaves transmission constraints and distribution company readiness at the center of the problem.

“Transmission must be fixed. The discos must be ready to take it, and the discos must be ready to pay for it,” Tope said.

He added that bilateral power arrangements may offer some relief, especially where industrial customers can be identified and supplied more directly. Such structures could improve collections for generators and help stabilize portions of the market while broader reforms remain incomplete.

Still, payment discipline remains the central issue, he said, arguing that the inability or unwillingness of customers to pay for electricity continues to undermine the sector. Government entities are also part of that challenge, according to Tope, because some public institutions consume electricity but are not always prepared to settle their bills promptly.

Separate concerns about liquidity were highlighted by developments at Geregu, which said it was engaging relevant stakeholders and advisers to resolve issues surrounding its ₦40.1 billion bond repayment obligations. The company has linked its repayment difficulties to turbine overhaul requirements, according to the interview.

Tope said the situation at Geregu should not be seen only as an isolated corporate event, but as another sign of stress in the broader power market. He described the company as historically having been viewed as a leading listed power utility, but said even stronger balance sheets may not be enough to shield generators from sector-wide payment disruptions.

“The strength of the balance sheet cannot insulate these power producers if there is a problem with the payment waterfall,” he said.

That observation matters for investors assessing both sovereign-backed interventions and private-sector power credits. While the federal government’s bond programme may help clear a portion of legacy debts and support near-term liquidity, analysts say confidence in the sector will depend increasingly on whether authorities can deliver deeper reforms.

Those include tariff reforms, better collections, transmission investment, stricter market discipline and improved settlement mechanisms across the electricity value chain. For now, the close of the bond subscription offers a fresh test of investor appetite for Nigeria’s power-sector rescue efforts and a reminder that financing alone may not be enough to restore the market’s long-term health.