Nigeria’s power sector continues to present one of the most complex and intractable challenges to the country’s economic reform agenda. Despite numerous efforts over the years, the sector is currently grappling with profound structural, financial, and governance issues, leading to a crippling liquidity crisis across the entire value chain.
In a new policy brief, the Centre for the Promotion of Private Enterprise (CPPE), led by Chief Executive Officer, Dr. Muda Yusuf, warns that the sector’s current trajectory, characterized by a staggering debt burden of approximately ₦4 trillion, is fiscally unsustainable and demands immediate, credible structural corrections.
The central issue, according to the CPPE, remains the difficulty in implementing a fully cost-reflective tariff regime. Electricity tariffs are capped largely due to social and political sensitivities, particularly following recent macroeconomic reforms like foreign exchange unification and fuel subsidy removal, which have heightened cost-of-living pressures. Without cost-reflective pricing, the sector cannot generate the necessary liquidity to sustain operations or attract crucial new investment. This failure has entrenched subsidy dependence, forcing repeated and unavoidable government financial intervention to prevent system collapse. However, Dr. Yusuf emphasizes that transferring the sector’s financial shortfalls onto the public balance sheet is merely a short-term fix that masks underlying inefficiencies.
The analysis delves into the systemic failures beyond pricing, pointing to structural weaknesses that have persisted since privatization. Concerns highlighted include the inadequate technical and financial capacity of some private investors, gaps in transparency during the privatization process, and weak governance, particularly among distribution companies (Discos) and the fully government-owned Transmission Company of Nigeria (TCN). TCN’s continued public management is cited as a key bottleneck, impeding system reliability and constraining generation capacity utilization through operational inefficiencies and inadequate network investment. The interconnected nature of the value chain means financial distress—where Discos fail to pay Gencos and Gencos struggle to pay gas suppliers—rapidly transmits, severely undermining overall sector confidence.
Given the urgency, government intervention, including bond issuances to settle outstanding obligations to gas suppliers and generators, has been deemed inevitable to maintain electricity supply. However, the CPPE advocates for this support to be strictly time-bound and tied to measurable reform milestones. Recognizing that a rapid, full removal of subsidies may be politically unrealistic, the brief calls for a phased and incremental reform approach, noting emerging positive developments like the introduction of differentiated tariff bands (such as Band A), increased decentralization allowing states greater roles, and rising adoption of independent power projects and renewable energy solutions.
To transition the sector toward financial viability and sustainability, the CPPE puts forth a six-point policy roadmap. This includes: (1) Adopting a clear, phased roadmap to cost-reflective tariffs, coupled with targeted social protection for vulnerable consumers;
(2) Strengthening governance and accountability through rigorous audit and transparent management of the vast sector debt;
(3) Addressing distribution weaknesses by enforcing strict performance benchmarks and mandatory recapitalisation for Discos;
(4) Reforming transmission management by exploring alternative management or concession models for the TCN;
(5) Supporting decentralization and renewables to reduce pressure on the national grid; and
(6) Limiting fiscal exposure by ensuring government financial support is clearly time-bound and linked to defined reform progress.
Dr. Muda Yusuf concludes that power sector reform is fundamentally a long-term undertaking that requires a balanced strategy. “Without decisive action to address structural inefficiencies, improve governance, and ensure fiscal discipline, the current trajectory will remain unsustainable,” he asserts. The path forward requires combining short-term support with medium- to long-term structural changes essential for building a financially viable, reliable, and inclusive power sector capable of underpinning Nigeria’s economic growth and development.
