Credit ratings critical to attracting investment into power sector, Says DataPro

DataPro, a technology-driven credit rating agency, has identified robust credit ratings as a key requirement for attracting long-term investment and restoring investor confidence in Nigeria’s power sector, which continues to grapple with deep-rooted financial challenges.

In its June Monthly Rating Brief, the agency said persistent liquidity constraints, rising debt burdens and weak cash flow generation remain major obstacles to the sector’s growth and sustainability despite years of reforms and privatisation efforts.

According to DataPro, Nigeria’s electricity industry remains caught in a cycle of financial instability, with inadequate revenue collection by electricity distribution companies triggering payment shortfalls throughout the value chain.

The agency noted that when distribution companies fail to recover enough revenue from consumers, generation companies receive less than what is due to them, while payments to gas suppliers are delayed. This, it said, creates mounting debt obligations that often require government intervention through guarantees, refinancing schemes and bailout packages.

“The issue is no longer limited to electricity generation. The bigger challenge now is ensuring sustainable financing for the sector,” DataPro stated.

The firm observed that years of accumulated liabilities running into trillions of naira, coupled with recurring funding gaps, have heightened concerns among investors and lenders about the sector’s financial viability.

It argued that beyond inadequate power supply, the industry faces a significant credibility challenge, as investors struggle to accurately evaluate risks in an environment characterised by uncertain revenue streams and weak repayment capacity.

To address this challenge, DataPro said credit ratings can play a vital role by providing independent assessments of financial health and helping investors differentiate stronger operators from weaker ones.

According to the agency, companies with stronger credit ratings are better positioned to access funding because investors and lenders have clearer information on their risk profiles and operational strengths.

“A well-rated power sector operator is more likely to attract investment because stakeholders can objectively assess its financial position and ability to meet obligations,” the report noted.

The agency also highlighted the mismatch between the long-term financing needs of power infrastructure projects and the predominantly short-term funding available in Nigeria’s financial markets.

It explained that major projects such as transmission expansion, metering initiatives, renewable energy development and generation capacity upgrades require long-tenure capital, while short-term borrowing arrangements often create refinancing risks and liquidity pressures.

DataPro maintained that improved creditworthiness could open the door to alternative funding sources, including infrastructure bonds, green bonds and corporate debt instruments, while potentially reducing borrowing costs for operators.

The agency further stressed that government support measures, although necessary in the past, cannot remain the primary solution to the sector’s financial difficulties.

“Government interventions have helped avert deeper crises across the electricity market. However, sustainable growth cannot depend indefinitely on emergency support programmes and refinancing arrangements,” the firm said.

Beyond facilitating access to capital, DataPro argued that the credit rating process can encourage stronger corporate governance, greater transparency, improved financial reporting and more effective risk management practices among industry participants.

While acknowledging that credit ratings alone cannot resolve broader structural issues such as tariff inadequacies, metering deficits, energy theft, transmission constraints and policy uncertainty, the agency insisted that enhancing financial transparency and credibility remains essential to attracting the level of investment required to transform Nigeria’s power sector.

It concluded that building investor confidence through stronger financial discipline and independent credit assessments could help create a more sustainable electricity market capable of supporting long-term economic growth and development.