The World Bank has raised concerns over the Federal Government’s ambitious N4 trillion bond programme aimed at settling longstanding debts in Nigeria’s power sector, warning that the initiative could create significant fiscal risks if not carefully integrated into national budget frameworks.
In its latest Nigeria Development Update, titled “Nigeria’s Tomorrow Must Start Today – The Case for Early Childhood Development,” the global lender noted that while the bond programme provides short-term liquidity relief to power generation companies and gas suppliers, it effectively converts decades-old arrears into formal sovereign debt obligations that must be fully accounted for in government finances.
The programme, launched under the Presidential Power Sector Debt Reduction Programme, targets verified debts accumulated between 2015 and April 2025. It began with a N590 billion bond issuance directly allotted to generation companies, carrying a seven-year tenor, a fixed coupon structure, and a yield of 17.5 percent. Although issued through a special-purpose vehicle linked to the Nigeria Bulk Electricity Trading Plc, the bonds are fully guaranteed by the Federal Government, transferring ultimate financial risk to public coffers.
“By securitising arrears, the programme spreads repayment over time and provides liquidity relief to the electricity value chain; however, it also transforms existing liabilities into explicit debt instruments,” the World Bank report stated. “Debt service – both interest and principal – will be paid by the Federal Government from budgetary resources over the life of the bonds.”
The bank emphasised that under international reporting standards, the programme qualifies as Public and Publicly Guaranteed debt (PPG) and should be transparently recorded in Nigeria’s debt statistics. This classification ensures that both the outstanding stock and future debt obligations are incorporated into debt sustainability analyses, medium-term fiscal frameworks, and cash management planning.
While the bond initiative may stabilise the electricity sector by clearing arrears and improving cash flow to power companies, the World Bank cautioned that it creates a sustained fiscal claim on government finances, potentially adding pressure to an already stretched budget and contributing to the country’s total public debt, which stood at $110.3 billion (approximately N159.2 trillion) as of December 31, 2025.
Nigeria’s power sector has long struggled with liquidity constraints, tariff shortfalls, and unpaid invoices, limiting investment and hampering electricity supply. The N4 trillion bond programme represents one of the most ambitious attempts to resolve these legacy debts through market-based financial solutions.
President Bola Tinubu recently approved the debt repayment plan following a final review of the sector’s outstanding obligations.
According to a statement by the President’s Special Adviser on Information and Strategy, Bayo Onanuga, N3.3 trillion has been verified for full settlement. Implementation has begun, with 15 power plants signing agreements totalling N2.3 trillion. “The Federal Government has already raised N501 billion to fund these payments, of which N223 billion has been disbursed, with further payments underway,” the statement noted.