FG’s N4 Trillion Power Bonds: Risky Debt-for-Debt Strategy Sparks Fiscal Concerns
The Federal Government’s plan to issue up to N4 trillion in government-backed bonds to settle crippling legacy debts owed to Electricity Generation Companies (Gencos) and gas suppliers has been unveiled, but it has triggered widespread concern. The initiative is a strategic move to convert long-standing market IOUs into tradable Federal Government of Nigeria (FGN)-guaranteed securities, aiming to stabilize the liquidity of the troubled electricity value chain.
While the government sees this as a crucial fiscal solution, critics warn that this “debt-for-debt” strategy risks deepening public debt, entrenching market failures, and burdening future taxpayers.
Table of Contents
The Initiative: Converting Debt into Sovereign Securities
Structure and Mechanics of the BondsKey Purpose: Solving the Liquidity Squeeze
The Root Problem: The Broken Payment Cycle
High Technical, Commercial, and Collection (ATC&C) LossesThe Upstream Ripple Effect
FG’s Justification: Stabilising a Critical Sector
The Presidential Power Sector Debt Restructuring Programme
Expert Warnings: The Fiscal Risk of Bailouts
Encouraging Market ComplacencyThe “Debt to Pay Debt” Sustainability Concern
The Way Forward: Calls for Transparency and Deep Reform
1. The Initiative: Converting Debt into Sovereign Securities
At the heart of the plan is the issuance of FGN-guaranteed bonds, a direct intervention intended to unlock cash flow in the power sector.
Structure and Mechanics of the Bonds
The bonds are being issued by NBET Finance Company PLC and carry a full sovereign guarantee from the Federal Government. The total program size is N4 trillion.
Phase 1 Allocation: The government plans to raise N1.23 trillion between November and December 2025.
Series 1 Tranche A (Cash): N300 billion offered to investors for cash through a book-building process.
Series 1 Tranche B (Non-Cash): N290 billion allotted directly to Gencos (Generation Companies) to settle their debts. These bonds are tradable and can be sold in the secondary market or used as collateral for loans, providing the Gencos with immediate liquidity options without a direct cash outlay from the government.
Tenor and Pricing: The bonds have a 7-year tenor with semi-annual interest payments and a fixed coupon rate tied to the comparable 7-year FGN Bond yield plus a market spread.
Key Purpose: Solving the Liquidity Squeeze
The bonds aim to restore investor confidence and resolve decade-old cash flow disputes that have stunted power generation and supply.
2. The Root Problem: The Broken Payment Cycle
Nigeria’s power sector is defined by a broken payment structure, where money rarely flows smoothly from consumption to generation.
Gencos complain of unpaid invoices from the Nigerian Bulk Electricity Trading Plc (NBET).
NBET blames Distribution Companies (Discos) for failing to remit full payments.
Discos cite tariff shortfalls, low collection efficiency, and huge technical losses.
High Technical, Commercial, and Collection (ATC&C) Losses
Data from the Nigerian Electricity Regulatory Commission (NERC) highlights the severity of the operational inefficiency:
In September 2025, Discos billed only 86.4% of the energy received.
Worse still, only 81.25% of the billed amount was actually collected.
This translates to an Aggregate Technical, Commercial and Collection (ATC&C) loss of over 30%.
The Upstream Ripple Effect
This systemic inefficiency creates a chronic liquidity squeeze that flows upstream: unpaid Gencos can’t pay gas suppliers, gas suppliers cut off fuel supply, and Nigeria’s generation capacity consequently dips.
3. FG’s Justification: Stabilising a Critical Sector
The Federal Government, through the Special Adviser to the President on Energy, Olu Verheijen, defended the bond initiative as an essential step.
Policy Origin: The bonds are part of the broader Presidential Power Sector Debt Restructuring Programme, ratified by the Federal Executive Council (FEC) in August 2025.
Goal: To clear verified arrears and restore financial stability to a sector that has historically deterred investment and stalled energy reform.
Fiscal Ease: Verheijen noted that the bonds are amortising (repaid gradually over time), which is intended to ease immediate fiscal pressure.
4. Expert Warnings: The Fiscal Risk of Bailouts
Despite the government’s good intentions, former regulators and financial analysts have raised serious alarms about the long-term sustainability and moral hazard of the plan.
Encouraging Market Complacency
Dr. Sam Amadi, former Chairman of NERC, questioned the logic of using public debt to solve what are fundamentally market debts. He warned that recurring bailouts would:
Encourage market complacency.
Reduce pressure on Discos and NBET to operate efficiently and transparently.
The “Debt to Pay Debt” Sustainability Concern
Dr. Biyi Ogunmodede, a power sector analyst, described the plan as “using debt to pay debt”.
Fiscal Trap: He noted that the debt still has to be serviced. If Discos do not significantly improve performance and tariffs are not restructured to reflect costs, the country will inevitably face another round of unpaid market obligations.
Necessary Companion Reforms: Liquidity support, Ogunmodede argued, must be paired with deeper sector reform, including tariff rationalization, Disco recapitalization, and improved regulatory enforcement.
5. The Way Forward: Calls for Transparency and Deep Reform
Experts stress that for the N4 trillion intervention to succeed, it must be accompanied by strict accountability measures.
Dr. Muda Yusuf, CEO of the CPPE, urged the government to embed:
Accountability, Verification, and Transparency: He called for a rigorous audit to ensure settlement is based on verifiable liabilities, warning that poorly implemented interventions can be hijacked.
Tariff Transition: A phased transition to cost-reflective tariffs is necessary, supported by targeted social protection for low-income households.
Performance Benchmarks: Discos must face performance-linked reforms, including mandated loss reduction targets, technical upgrades, and capital injections.
The government has finalized the implementation framework, with the bond issuance proceeding in tranches aligned with ongoing verification audits of market claims. The hope is that the successful issuance of the first N1.23 trillion will set a blueprint for market discipline and pave the way for sustainable reform.
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