Power generation companies have turned down contract proposals from the Federal Government that would have required them to accept only 50 per cent of the total debt owed for electricity supplied to the national grid.
The proposed contracts, described as a 50 per cent “haircut,” were sent to all power generation companies except Azura Power West Africa. Under the plan, the government offered to pay roughly N2.4 trillion, or 49.9 per cent of the total debt.
Government debt to the GenCos had risen above N5 trillion as of the end of June, with President Bola Tinubu committing in July to settle the debts through bond issuance during a meeting with the companies.
Following the Federal Executive Council’s approval in August, senior government officials met with GenCo owners in early October. Special Adviser on Energy, Olu Verheijen, had announced that an agreement had been reached on the debt repayment model.
However, on October 16, 2025, the government sent out two contracts, titled “NBET deed of settlement” and “Deed of novation,” which among other clauses, required GenCos to forfeit 50 per cent of the debt as final settlement.
The contracts sought to transfer government debt from the Nigerian Bulk Electricity Trading Plc (NBET) to a new entity, NBET Bond Finance Company Plc.
The contracts read in part:
“GenCo, hereby, accepts the sum of (‘Settlement Amount’) as the full and final settlement of the outstanding legacy Debt, including any interest thereon and any other claim for losses, whether present or future and whether known or unknown, in respect of the legacy debt.
“For the avoidance of doubt, GenCo agrees that the settlement amount, as a compromise of its rights to the legacy debt, hereby (i.e., from the date of this Agreement), extinguishes its right to any claims to the legacy debt, including any contractual claims for losses whatsoever and howsoever, arising whether from deemed capacity, true ups and interest on delayed payment of substantive invoice amounts, true-up compensations or deemed capacity payments referenced in Appendix A or elsewhere.
“The parties agree that subject to prompt payment of the settlement amount as contemplated in the payment structure under Clause 3 below and Appendix B, the settlement amount shall not bear any interest or give rise to any further claims for any losses whatsoever.
“NBET’s obligation to pay the settlement amount to GenCo shall be novated to Bond SPV, via the Novation Agreement and upon its execution, Bond SPV shall be solely responsible for payment of the settlement amount.
“The parties acknowledge and are aligned on the PPSFRP’s plan for the settlement amount to be paid by Bond SPV solely from the outcome of an FGN-backed public bond issuance programme that will be conducted by the Bond SPV (‘Bond Programme’).
“These bond proceeds are expected in successive issuance phases and tranches that will have an impact on the exact timeline for payment of the settlement amount in installments (where applicable).”
A source from one of the GenCos told Vanguard that the deal, being promoted by the Presidential Power Sector Debt Reduction Plan Committee, was in bad faith and appeared to undermine President Tinubu’s pledge to resolve the financial crisis in the Nigerian Electricity Supply Industry.
“For them now to draw up individual contracts for the companies and force it down on them is quite unfortunate. The GenCos have again rejected it and we are insisting that the government should pay off the debt in full,” the source said
The source also explained that the GenCos had suggested two alternative approaches, both ignored by the government in the contract documents.
The first option involved the government paying N2.4 trillion immediately, with the balance deferred. The second proposed a 10 per cent haircut on interest while paying deemed capacity and true-up in full.
Another source confirmed the contract offers, adding that companies were given only five days to respond:
“The contract papers were sent on October 16, with companies given October 21, as the deadline to respond to the offer. As far as I know, all the GenCos rejected it.”
The documents warned that failing to resolve the debt issue could worsen financial distress in the NESI value chain, leading to reduced power generation, lower electricity supply, increased risk of system collapse, and further erosion of investor confidence.
Commenting on the situation, the Managing Director of Mainstream Energy Solution Limited, Lamu Audu, said,“The solution to the debt crisis must be one that was agreeable to all parties. The only way to attract more investments into the sector is to resolve the issue of financial challenges facing power generation companies. While the realities facing hydro power plants were different from gas powered plants, the financial challenges are crippling operations.”
Audu added that his company was working with the government on a deal that would convert part of the debt into concessionaire fees payable to the Bureau of Public Enterprises (BPE).
Energy market expert Lanre Elatuyi warned that the government’s proposal could send the wrong message to investors, “ThoughI haven’t heard about this, if this is true, then we are sending a very wrong signal that will deter investments in the electricity sector. GenCos are currently faced with liquidity issues that affect optimal performance and ability to expand their capacities. With this haircut, their situations get worsened and the Nigerian electricity supply industry will soon experience serious resource adequacy problems.
“Also, we may experience high generation costs as GenCos will try to raise their marginal cost to accommodate anticipated loss of revenue. The government should not expect more investors to come to a sector where cost recovery is very uncertain.”
