Nigeria's power sector is trapped in a liquidity crisis, but the problem isn't a shortage of generating capacity. Instead, weak cashflow collection and structural flaws in how money moves through the system are strangling the industry.
Historically, revenue flowed in a straight line from customers to Distribution Companies, then to the Nigerian Bulk Electricity Trader, Generation Companies, and finally to gas suppliers. That chain broke at the distribution level.
High technical losses, energy theft, and poor metering have crippled collections at DisCos. Tariffs weren't set to reflect actual costs either.
According to NERC, DisCos have remitted far less than what they're invoiced for. The sector-wide shortfall tops four trillion naira.
When DisCos can't pay NBET in full, NBET struggles to settle with GenCos. That creates a debt buildup across the generation segment.
GenCos then face pressure paying gas suppliers. Gas dries up, output falls, and revenues shrink further down the line.
It's a vicious cycle. Temporary fixes like the Central Bank's Payment Assurance Facility have offered some relief, but they don't address the core problem.
Recent government moves offer new hope. Bond issuances have helped settle GenCo arrears and ease upstream pressure.
Structured gas payment arrangements have also eased strain on suppliers. These steps have gradually stabilised the market.
The Electricity Act 2023 is reshaping how the sector operates. It's pushing GenCos and DisCos toward direct bilateral contracts instead of relying on a centralised buyer.
NERC's new rules on bilateral trading are reducing NBET's role in the middle. This shift strengthens contractual discipline across the entire value chain.
Focus is now shifting from building more power plants to making existing ones bankable. That's a crucial distinction.
Investors care less about raw megawatts than they do about predictable cashflows. They want creditworthy counterparties and enforceable payment structures.
Projects can no longer rely on output alone to attract capital. They must demonstrate how they'll manage collection risk and guarantee payment certainty.
How well each transaction is structured will determine whether the sector recovers. Better structuring means better bankability.
Capital flows toward deals with credible partners and ironclad payment mechanisms. Everything hinges on transaction quality from here forward.
The anatomy of the crisis reveals why collections matter most. ATC&C losses—comprising network inefficiencies, theft, and weak metering—have been devastating.
NERC's quarterly reports document these inefficiencies clearly. They show why DisCos struggle to meet their remittance obligations.
When DisCos fall short, the problem doesn't stop there. It spreads upstream through every layer of the supply chain.
GenCos can't pay gas suppliers what they're owed. Supply contracts get disrupted.
Lower gas deliveries mean lower generation. Lower generation means tighter revenues sector-wide.
Breaking this cycle requires more than hope. It demands stronger collection discipline and transaction structures that actually work.
