Understanding Nigeria's Power Debt and Opportunities Ahead

The debt from our neighbors is just a leftover service charge from a power trade Nigeria handled in 2019. The real story is about growing a system that already works well.

Every few months, we hear the same news: Benin, Togo, and Niger owe Nigeria billions for electricity. This time, it's about ₦17.45 billion. It comes with the usual anger, saying we are supplying power to our neighbors while our citizens suffer in darkness. This makes a good headline, but it's not the full truth. It distracts us from a much more positive story.

Let’s look closely at what this figure really means. The payment risk people talk about was settled years ago. Thanks to the Eligible Customer reforms in 2017 and the Willing Buyer, Willing Seller plan in 2019, electricity supply for cross-border and big industries now runs on direct contracts between neighboring utilities and Nigerian Generating Companies (Gencos). To buy power this way, a buyer must provide a letter of credit or bank guarantee before any electricity flows. This is why the energy trade with our neighbors works: it’s designed to be financially disciplined. It uses surplus power, not what comes from Nigerian homes, and is limited to less than 10 percent of the total power on the grid.

So, what about the ₦17.45 billion? This is a leftover service charge, a regulated fee that supports the regulator, the transmission company, the bulk trader, and the market and system operator. This fee runs at about $20 million every quarter. The actual value of the electricity, the energy and capacity for about 350 megawatts supplied, is settled under those direct contracts, and that amount is higher. The figure in the news is just a small part of the trade, and it's the only part not fully covered by a guarantee yet. The neighbors pay this small fee to the generating companies, along with their energy and capacity charges, and it is the generating company that pays the market operator. Even this is changing: the system operator is moving to secure its service charges like the energy contracts already do. If there are delays, it usually involves older government-linked plants under old terms, not foreign defaults.

This is the key point to focus on because it shows what Nigeria should do next. The same financial discipline that improved cross-border trade also applies to the power our factories buy. On that same June day, 228 megawatts went directly from generators to Nigerian industries like steel mills and food processors under guaranteed contracts. These customers pay for reliable power and avoid the collection problems of the distribution network. This part of the system is working well without attracting much attention.

That is the area to expand, and it should be done quickly, as it does not depend on fixing everything else first. Nigeria can grow commercial contracts both on the grid and off it, through captive plants and mini-grids. It can start in places where money is most reliable: agro-processing zones and major crop areas, then move to commercial hubs and big cities. These areas have high-value loads that can handle cost-reflective contracts today. Every megawatt sold this way is paid for, leading to more industrial output, more jobs, and showing lenders that this model works.

The same idea can be applied to the last and largest part of the sector. Most of the roughly 6.8 trillion naira that generators are owed lies between distribution and generation companies. Here too, a solution is already underway: the regulator’s 2024 plan for bilateral trading is moving generators and distributors away from the old single-buyer system to direct contracts with guarantees. By the middle of last year, fewer than a third of grid generators had these contracts; most were still supplying on trust, which leads to debt. Completing this transition, carefully and without disrupting supply, will ensure distribution-to-generation contracts have the same financial discipline as industrial or cross-border ones. This would close the biggest gap in the system.

None of this excuses the losses in our own network, and tackling that is important too. On 28 June, about 399 megawatts, equivalent to one power station, was lost in the grid before reaching customers. The bigger issue is downstream, where distribution and collection losses of 30 to 40 percent cost distribution companies hundreds of billions of naira every quarter. Solutions like metering, reinforcing weak transmission lines, and tackling vandalism and theft are needed. Every megawatt recovered is the cheapest power available in the country. These issues are being addressed, but they should be handled faster.

Let’s stop the yearly outrage over the ₦17.45 billion. If we look closely, it is just a small service charge on a trade Nigeria set up and guaranteed years ago, not proof that our neighbors are cheating us. The more important truth is that Nigeria has a working model of direct, guaranteed contracts with international customers and our own industries. The next step is simple. It is to expand this model into our agro-processing areas and cities, extend it throughout the value chain, and keep fixing our local issues. The people managing this sector are mostly already on the right path. What they need is help to move faster, not to keep debating a debt that was settled long ago.