…It’s a game changer -NBET
…Signing equals death warrant – GenCos
Nigeria raised N501 billion in its first bond sale dedicated to clearing power sector debts, achieving full subscription as President Bola Tinubu’s administration moves to address payment arrears that have choked electricity generation for over a decade.
But the landmark issuance has exposed a deepening rift between government officials celebrating the deal and generation companies warning the structure could push them toward insolvency, according to legal opinions obtained by BusinessDay and interviews with industry executives.
The inaugural tranche under the Presidential Power Sector Debt Reduction Programme closed Tuesday with participation from pension funds, banks and asset managers, according to Olu Arowolo Verheijen, special adviser to the President on Energy.
The issuance comprised N300 billion from capital markets and N201 billion in bonds allocated directly to power generation companies.
The programme targets 14 power plants operated by five generation companies owed for electricity supplied between February 2015 and March 2025. Total negotiated settlements stand at N827.16 billion, payable in four instalments, with the first bond proceeds funding approximately 50 percent of obligations through a combination of cash and notes.
“Capital formation can only come when there is confidence, when you can truly see a line of sight in recovering investments previously made,” said Kola Adesina, group managing director of Sahara Power Group, which operates five plants, including the 1,320-megawatt Egbin facility. “Once this process is over, construction will commence immediately on the second phase of our Egbin Power Plant.”
Read also: Nigeria’s power sector bleeds more cash than generates electricity
Johnson Akinnawo, acting managing director of Nigerian Bulk Electricity Trading (NBET) Plc, pointed out that the successful completion of the first tranche marked a milestone in the implementation of the programme.
“The successful close of the N501 billion bond represents a major step forward in resolving the longstanding challenge that has constrained the power sector for years. This intervention will significantly improve liquidity across the value chain, enable operators to stabilise their operations and support renewed investment in the Nigerian power sector,” he stated.
GenCos’ concerns
Yet an 18-page expert opinion commissioned by the Association of Power Generation Companies paints a different picture, describing the bond structure as ‘obnoxious’ and warning that accepting the government’s terms amounts to ‘signing your death warrant.’
The legal assessment, prepared for the industry group’s board, raises fundamental questions about the special purpose vehicle issuing the bonds, the mandatory waiver of contractual claims, and whether the settlement will stem monthly debt accumulation currently running at N200 billion.
At the heart of the dispute is NBET Finance Company Plc, the orphaned SPV created to issue the sovereign-backed bonds.
The entity has ‘minimal equity capitalisation’ and no proven track record, according to the opinion, which questions why Nigerian Bulk Electricity Trading Plc itself cannot issue bonds under the existing securities law.
“There is no scenario under which this SPV can carry N6 trillion debt better than NBET PLC, the parent,” the document states, referring to total arrears that have continued accumulating even as the settlement was negotiated. “It is better to remain NBET creditors.”
The settlement also requires generation companies to waive claims for accrued interest, true-ups for capacity payments when plants were curtailed by the grid operator, and deemed capacity charges, all contractual rights embedded in their power purchase agreements. Those concessions represent a “material haircut on legitimate contractual claims,” according to the opinion.
Market liquidity questions
Even more problematic is the requirement that generators become bond sellers in the secondary market to access cash beyond the initial N300 billion raised.
“GenCos, by design, are not sellers or traders but power generators,” the legal opinion notes. The document warns that forcing technical operators to navigate treasury functions diverts management bandwidth from plant maintenance and fuel procurement while exposing them to market interest-rate risk and sovereign credit risk.
Historical precedent offers little comfort. A similar local contractor bond issued over a decade ago “traded at a huge discount in the secondary market,” according to the assessment. With federal government bonds already competing for the same investor base, generators may face steep haircuts when attempting to monetise their allocations.
“We expect that the premium over FGN that this bond trades at will widen over time, thus giving the GenCos less cash than they should get,” the opinion states.
Regulatory gaps
The legal assessment also flags potential compliance failures. The Public Procurement Act requires a ‘Certificate of No Objection’ from the Bureau of Public Procurement for contracts above statutory thresholds, while debt issuance must be authorised by the Debt Management Office(DMO) and approved by the Federal Executive Council (FEC).
More fundamentally, the Nigerian Insurers and Reinsurers Securities Office has no record of NBET Finance Company as either a licensee or market participant, raising questions about the entity’s legal capacity to issue securities at scale.
Distribution companies, which owe money to the bulk trader, “can legally challenge this arrangement, given that there is no contract between the DisCos and this orphaned SPV,” according to the opinion. That creates a privity-of-contract problem that could undermine the entire repayment structure.
Debt arithmetic
Even if the bond programme proceeds smoothly, the mathematics remain daunting. Outstanding liabilities to generation companies reached approximately N6 trillion by December 2025, driven by a monthly shortfall of N200 billion, as distribution companies remit only about 35 percent of invoiced amounts.
Under the proposed four-tranche structure, “at best, N2 trillion of this obligation will be defrayed by the end of 2026,” the legal opinion calculates. “But even with that, the outstanding debt will still be over N6.4 trillion” due to ongoing accumulation.
The settlement covers First Independent Power Limited, Geregu Power Plc, Ibom Power Company Limited, Mabon Limited and Niger Delta Power Holding Company Limited, representing 4,483.60 megawatts per hour of generation capacity. The companies have executed agreements with Nigerian Bulk Electricity Trading Plc.
Read also: NBET Finance Company’s N590bn series 1 Power Sector Bond issue closes
Alternative proposals
The generation companies’ association is proposing that the government instead issue regular federal government bonds for the entire N6 trillion in arrears, allowing power producers to sell gradually at their own pace. Alternatively, they recommend a one-to-one split of N3.2 trillion in cash and N3.2 trillion in FGN bonds.
Other recommendations include negotiating caps on discount facility fees, securing written commitments for upfront cash payments before year-end 2025, and restoring international arbitration provisions from the original power purchase agreements rather than routing disputes through Nigerian courts.
“The bond alone does not solve the underlying cost recovery problems in the sector,” the legal opinion concludes, pointing to the absence of cost-reflective tariffs and insolvent distribution companies as root causes.
