Nigeria’s power reform stalls as tariff politics, N4tr debt deepen sector’s crisis

By : Waliat  Musa

Date: 15 December 2025 5:30am WAT

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Minister of power, Adebayo Adelabu

Minister of power, Adebayo Adelabu

• CPPE warns current financing model not sustainable • Transmission bottlenecks, Disco weaknesses undermine supply • Think tank urges phased reforms, cost-reflective pricing roadmap

Nigeria’s long-running electricity reform agenda is facing renewed strain as tariff politics, deep structural weaknesses and a growing liquidity crisis continue to undermine the sustainability of the power sector.

This is according to a policy brief by the Centre for the Promotion of Private Enterprise (CPPE), signed by the Chief Executive Officer of CPPE, Dr Muda Yusuf, on December 14, 2025.

In the policy brief titled ‘Nigeria’s Power Sector Reform: Managing Complexity, Liquidity, and Political Economy Constraints,’ CPPE warned that despite repeated reform efforts, the electricity industry remains one of the most challenging segments of Nigeria’s economic reform programme, grappling with deep structural, financial and governance challenges.

The document described the sector’s problems as multidimensional, spanning political economy constraints, tariff distortions, weak investor capacity, transmission bottlenecks and a persistent liquidity crisis across the value chain.

A central issue identified in the policy brief is the difficulty of implementing a fully cost-reflective tariff regime. CPPE noted that electricity tariffs remain capped largely due to social and political sensitivities following recent macroeconomic reforms, a situation that has entrenched subsidy dependence and widened the sector’s financing gap.

According to the brief, the inability to move to cost-reflective pricing has forced government intervention in the short term to prevent system collapse and sustain electricity supply.

However, CPPE cautioned that the current trajectory, marked by rising sector liabilities estimated at N4 trillion, is fiscally unsustainable without deeper structural corrections, improved transparency and gradual but credible reform implementation.

The think tank stressed that power sector reform is critical to Nigeria’s economic competitiveness, industrial growth and social welfare, but progress has been slow and uneven. It explained that the tightly interconnected nature of the electricity value chain means that weaknesses in gas supply, generation, transmission or distribution quickly undermine the entire system.

Recent macroeconomic reforms, including foreign exchange unification and fuel subsidy removal, have further complicated the reform environment by intensifying cost-of-living pressures and strengthening resistance to tariff adjustments in the power sector.

On the political economy of electricity pricing, CPPE described tariff reform as one of the most politically sensitive and technically demanding components of Nigeria’s current reform programme.

“Without cost-reflective pricing, the sector is unable to generate sufficient liquidity to sustain operations or attract new investment,” it warned.

The policy brief said the resulting subsidy burden has compelled the government to repeatedly step in financially, effectively transferring inefficiencies and revenue shortfalls onto the public balance sheet.

Beyond tariff distortions, CPPE highlighted structural weaknesses linked to the post-privatisation landscape of the sector. These include the technical and financial capacity of some private investors, transparency and due diligence gaps during the privatisation process, and weak governance and operational inefficiencies, especially among distribution companies (Discos) and the TCN.

According to the document, these shortcomings have constrained service quality, weakened revenue collection and limited operators’ ability to invest in network upgrades and loss reduction.

Transmission remains a major bottleneck. The policy brief noted that the Transmission Company of Nigeria (TCN), which is under full government ownership, continues to suffer from operational inefficiencies, inadequate investment and slow network expansion. These challenges, CPPE said, constrain generation capacity utilisation and reduce overall system reliability.

While acknowledging that “recent efforts under the Presidential Power Initiative have reduced the frequency of grid collapse,” CPPE said weaknesses in the transmission segment continue to exacerbate liquidity and service delivery challenges across the value chain.

The policy brief also detailed the scale of the liquidity crisis across the sector, noting that financial distress in one segment quickly transmits to others. It explained that generating companies struggle to pay gas suppliers, while distribution companies are unable to generate sufficient revenue to meet obligations to Gencos, further weakening confidence across the industry.

Given the scale of the crisis, CPPE said government financial intervention has become inevitable in the short term. It pointed to recent bond issuances aimed at settling outstanding obligations, particularly to gas suppliers and Gencos, as necessary steps to prevent a breakdown of the electricity supply system.

“Such interventions are necessary to maintain power availability for households and businesses while longer-term reforms are gradually implemented,” the document stated.

Despite the challenges, CPPE identified emerging positive developments in the sector, arguing that a rapid transition to full subsidy removal may be politically unrealistic. Instead, the policy brief made a case for phased and incremental reform, citing the introduction of differentiated tariff bands such as Band A, increased decentralisation with states assuming greater regulatory and operational roles, expansion of independent power projects, and rising adoption of renewable energy solutions at household and enterprise levels.

However, the document warned that the current financing model is unsustainable. It noted that sector liabilities have risen to nearly N4 trillion and continue to grow, underscoring the need for outstanding claims to be properly verified, subjected to rigorous audit, and managed transparently and credibly.

Drawing lessons from Nigeria’s experience with fuel subsidy regimes, CPPE warned that subsidy systems are vulnerable to abuse and malpractice without strong oversight, making transparency and accountability critical to any ongoing government support for the power sector.

In its policy recommendations, CPPE called for the adoption of a clear and predictable roadmap towards cost-reflective tariffs, alongside targeted social protection for vulnerable consumers. It also urged authorities to strengthen governance and accountability in subsidy management, debt verification and financial settlements.

The brief further recommended stricter enforcement of performance benchmarks for Discos, including recapitalisation, technical upgrades and loss reduction, as well as exploring alternative management or concession models for the Transmission Company of Nigeria to improve efficiency and investment.

CPPE also emphasised the importance of supporting decentralisation, independent power projects and renewable energy adoption to reduce pressure on the national grid, while warning that government financial support should be time-bound and linked to measurable reform milestones in order to limit fiscal exposure.

The policy brief added that power sector reform in Nigeria is a long-term and incremental process rather than a quick fix, stressing that the sector’s complexity, political economy constraints and institutional weaknesses mean that progress will necessarily be gradual.

However, it warned that without decisive action to address structural inefficiencies, improve governance and ensure fiscal discipline, the current trajectory of Nigeria’s power sector will remain unsustainable, undermining its ability to support economic growth and development.

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