Reforms, Transparency To Address Power Sector’s N4trn Debt Crisis – Economist

The Centre for the Promotion of Private Enterprise (CPPE) emphasised the urgent need for structural enhancements, enhanced transparency, and the implementation of strategic reforms to effectively address Nigeria’s outstanding power sector debts, which currently total N4 trillion.

The director/CEO of CPPE, Dr. Muda Yusuf, in a statement titled, ‘Nigeria’s Power Sector Reform: Managing Complexity, Liquidity, and Political Economy Constraints’ said that “the power sector is a critical component of Nigeria’s economic reform agenda. Despite various reform attempts over the years, the sector continues to encounter significant structural, financial, and governance challenges.”

Yusuf pointed out that these challenges are multifaceted, encompassing political economy constraints, tariff distortions, limited investor engagement, transmission bottlenecks, and a prolonged liquidity crisis throughout the value chain.

He noted that “the ongoing challenge of implementing a fully cost-reflective tariff system is largely influenced by social and political sensitivities, particularly in the wake of recent macroeconomic reforms. This has led to an enduring reliance on subsidies, further exacerbating the sector’s financing gap.”

He highlighted that “governmental intervention is necessary in the short term to avert a collapse of the system and ensure a stable electricity supply. However, maintaining the current trajectory with rising sector debts hovering around N4 trillion is not fiscally sustainable without significant structural improvements and a commitment to credible reforms.”

Yusuf emphasised that, “a crucial impediment to reforming the power sector is establishing a fully cost-reflective tariff regime. The caps on electricity tariffs, driven by concerns over affordability and the potential social impact of reforms, hinder the sector’s ability to generate the liquidity needed for sustainable operations and attract new investments.

“This reliance on subsidies has ultimately placed a financial burden on government resources, transferring inefficiencies and revenue challenges to the public balance sheet.”

He defined power sector reform as one of the most politically sensitive yet technically necessary elements of Nigeria’s current reform landscape. Beyond tariff structures, the sector has inherent weaknesses, particularly in the aftermath of privatisation.

“Transmission remains a major bottleneck, affecting generation capacity and overall system reliability. These weaknesses further complicate liquidity and service delivery challenges. However, recent initiatives under the Presidential Power Initiative have positively impacted reducing the occurrence of grid failures,” he stressed.

In light of the severity of the crisis, Yusuf believed that “government intervention to alleviate the sector’s financing gap is imperative in the short term. While an immediate shift to complete subsidy removal may seem politically unfeasible, there is a strong argument for gradual and phased reforms.”

He asserted that the current financing model lacks sustainability, with sector liabilities reaching nearly N4 trillion and continuing to rise, saying it is critical that all outstanding claims are rigorously verified, audited, and managed transparently to ensure accountability.

Drawing from Nigeria’s experience with fuel subsidy regimes, Yusuf stressed the need for strong oversight and accountability frameworks to shield the power sector from similar challenges, noting that without decisive measures to tackle structural inefficiencies and bolster governance, the existing trajectory is unlikely to be viable.

Yusuf advocated “a balanced strategy that merges short-term government support with comprehensive medium- to long-term reforms. Such an approach is crucial for cultivating a financially viable, dependable, and inclusive power sector, thereby supporting Nigeria’s broader economic growth and development.”