The World Bank has expressed concern over the Federal Government’s plan to settle about N3.3tn owed to power-generating companies, warning that the initiative effectively converts long-standing electricity sector liabilities into sovereign debt obligations.
The global lender also cautioned the government over its newly introduced N4tn bond programme aimed at clearing debts in Nigeria’s power sector.
This position was contained in the latest Nigeria Development Update titled “Nigeria’s Tomorrow Must Start Today – The Case for Early Childhood Development.” The report, obtained on Wednesday, explained that the structure of the programme places a direct and recurring burden on government finances, even though it may provide short-term liquidity relief to the electricity value chain.
According to the report, the proposed debt resolution framework effectively shifts the financial burden of the electricity sector’s arrears to the government’s fiscal accounts.
Under a sub-section titled “Treating the sovereign-guaranteed bond programme as public debt,” the World Bank examined the Federal Government’s plan to resolve legacy arrears owed to power generation companies and gas suppliers.
The bank noted that the strategy involves a securitisation framework backed by sovereign guarantees, which means the obligations must be fully recognised as public debt.
The report explained that the Federal Government had launched a N4tn multi-tranche bond programme under the Presidential Power Sector Debt Reduction Programme.
The programme targets debts accumulated between 2015 and April 2025 within Nigeria’s power sector, particularly obligations owed to power generation companies and gas suppliers.
While the initiative could provide immediate financial relief to companies within the electricity value chain, the World Bank warned that it would significantly increase the government’s debt burden.
According to the lender, converting the arrears into sovereign-backed bonds essentially transfers the responsibility for repayment to the government, making it part of Nigeria’s official public debt profile.
The bank stressed that such obligations must be transparently reflected in Nigeria’s fiscal accounts to ensure proper debt management and accountability.
Analysts say Nigeria’s power sector has struggled with long-standing liquidity challenges, largely driven by tariff shortfalls, inefficiencies in electricity distribution, and the government’s subsidy commitments.
The World Bank therefore advised that while debt settlement may stabilise the sector in the short term, broader structural reforms are required to ensure long-term financial sustainability.
