The World Bank has weighed in on the Federal Government’s plan to settle N3.3tn in debts owed to power-generating companies, cautioning that the initiative effectively converts long-standing liabilities in the electricity sector into sovereign debt obligations that must be fully recognised in Nigeria’s fiscal accounts.
The global lender also raised concerns about the newly introduced N4tn bond programme intended to clear the debts, warning that the structure places a direct and recurring burden on government finances, even though it provides short-term liquidity relief to the electricity value chain.
These views are detailed in the World Bank’s latest Nigeria Development Update, titled “Nigeria’s Tomorrow Must Start Today – The Case for Early Childhood Development,” obtained by our correspondent on Wednesday. Under a sub-section titled “Treating the sovereign-guaranteed bond programme as public debt,” the report examines the Federal Government’s plan to resolve legacy arrears owed to power generation companies and gas suppliers through a securitisation framework backed by sovereign guarantees.
The report notes that the government launched a N4tn multi-tranche bond programme under the Presidential Power Sector Debt Reduction Programme to address debts accumulated between 2015 and April 2025. The programme began with a N590bn bond issuance directly allotted to generation companies, featuring a seven-year tenor, a fixed coupon, and an initial yield of 17.5 per cent.
Although the bonds were issued via Nigeria Bulk Electricity Trading Plc Finance Company Plc—a special purpose vehicle of NBET—the full sovereign guarantee by the Federal Government effectively transfers the financial risk to the public sector. According to the World Bank:
“By securitising arrears, the program spreads repayment over time and provides liquidity relief to the electricity value chain; however, it also transforms existing liabilities into explicit debt instruments. Debt service, both interest and principal, will be paid by the FGN from budgetary resources over the life of the bonds.”
The report further explains that both interest and principal repayments will be funded directly from government revenues, creating a sustained claim on public finances that must be carefully integrated into Nigeria’s fiscal planning frameworks.
Highlighting the fiscal implications, the World Bank stressed that, in line with international reporting standards, the bond programme qualifies as Public and Publicly Guaranteed (PPG) debt and should be transparently recorded in Nigeria’s debt statistics.
“As such, the associated debt service flows create a direct and recurring claim on the federal treasury and must be incorporated into annual budgets, medium-term fiscal frameworks, and cash management planning. The explicit sovereign guarantee places ultimate credit risk on the federal government, meeting the international criteria for classification as PPG debt, given that the new debtor acquires an effective financial claim on the original debtor.”
The classification arises because the government, by guaranteeing the bonds, assumes the financial obligations tied to the underlying debts, effectively stepping into the shoes of the original debtor. The report continues:
“Accordingly, both the outstanding stock and future debt service obligations should be reflected in Nigeria’s central government debt statistics and integrated into debt sustainability analysis. Transparent recognition is essential to accurately assess fiscal risks, contingent liabilities, and the medium-term debt burden.”
The World Bank’s position highlights the trade-offs in the government’s strategy. While the bond programme may stabilise the power sector by clearing arrears and improving cash flow to generation companies and gas suppliers, it also adds pressure to an already stretched fiscal position.
Nigeria’s total public debt stood at $110.3bn (about N159.2tn) as of December 31, 2025. The country’s power sector has long struggled with liquidity challenges, with generation companies and gas suppliers accumulating trillions of naira in unpaid invoices due to tariff shortfalls, inefficiencies, and market imbalances. Successive administrations have attempted to address these arrears, which have constrained investment and limited the sector’s ability to deliver reliable electricity. The current bond programme represents one of the most ambitious attempts to resolve these legacy debts, marking a shift toward market-based financial solutions.
President Bola Tinubu recently approved the payment plan under the Presidential Power Sector Financial Reforms Programme. According to a statement by the Special Adviser to the President on Information and Strategy, Bayo Onanuga, the debt repayment plan followed a final review of the legacy debts that have accumulated over more than a decade.
“The long-standing debts accumulated between February 2015 and March 2025. Following verification, N3.3tn has been agreed upon as a full and final settlement, ensuring a fair and transparent resolution,” Onanuga said.
Implementation has already begun, with 15 power plants signing settlement agreements totalling N2.3tn. The Federal Government has raised N501bn to fund these payments, of which N223bn has already been disbursed, with further payments underway.
Despite this progress, the World Bank’s warning underscores the importance of balancing sectoral reforms with fiscal prudence, particularly as Nigeria contends with rising public debt and growing debt service obligations.