By Nigeria has closed a ₦728.9 billion Series 2 power sector bond to settle verified legacy debts owed to electricity generators, Africa Finance Corporation (AFC) said on Sept. 23, as the government seeks to improve liquidity in the electricity market.
The transaction, issued by NBET Finance Company Plc under Nigeria’s Presidential Power Sector Financial Reforms Programme, brings total issuance under the government’s Power Sector Multi-Instrument Issuance Programme to about ₦1.23 trillion.
AFC acted as co-financial adviser on the transaction, working alongside CardinalStone Partners. The corporation also advised on the inaugural ₦501 billion Series 1 transaction completed in January.
The Nigeria power sector bond is part of a broader ₦4 trillion programme designed to address more than a decade of unpaid obligations in the Nigerian electricity supply industry.
Proceeds from the Series 2 issuance will support the settlement of verified overdue receivables owed to power generation companies, or GenCos, for electricity supplied between February 2015 and March 2025, according to AFC.
The transaction is structured to convert part of those outstanding claims into financial instruments, providing liquidity to companies that have struggled to recover payments for electricity supplied to the market.
AFC said its role included supporting the government in negotiating and executing settlement agreements with additional GenCos, structuring the cash and non-cash portions of the Series 2 transaction and engaging with investors before the issuance.
“Closing the second issuance within eight months of the inaugural series shows the Programme is working as designed,” Banji Fehintola, executive board member and head of financial services at AFC, said in the statement.
He said verified legacy obligations were being converted into investable instruments and that domestic investors were supporting the approach.
The Series 2 transaction follows the government’s payment of the first coupon and principal instalment on the Series 1 bonds in July. AFC said the issuance was oversubscribed and attracted pension fund administrators, banks, sovereign wealth funds and asset managers.
The participation highlights the role of domestic institutional investors in financing the government’s effort to address the electricity sector’s accumulated liabilities.
The first series was valued at ₦501 billion and was completed in January. It comprised cash and non-cash components, with the government subsequently reporting payments to participating generation companies.
Nigeria’s finance ministry and other government officials have previously said the programme is intended to improve liquidity across the electricity value chain, including the ability of generators to meet obligations to gas suppliers and maintain generating plants.
The financial pressures in the sector have been linked to a long-running mismatch between electricity costs, payments collected from customers and obligations across the power market.
In July, the government launched the second bond after reporting that about ₦333 billion had been paid to eight GenCos operating 17 power plants under the first phase. The government also reported that the first Series 1 coupon payment of about ₦63.5 billion was made on schedule.
The second issuance was launched in August and was structured as a seven-year amortising bond. Earlier reports on the transaction said it comprised about ₦402 billion in cash bonds raised from capital-market investors and about ₦327 billion in non-cash bonds allocated to participating generation companies.
Akin Odeyemi, managing director and chief executive officer of Nigerian Bulk Electricity Trading Plc (NBET), said the accumulated receivables had constrained generators’ ability to pay gas suppliers, maintain plants and invest in new capacity.
“With Series 2, we are turning more of those arrears into liquidity across the electricity value chain,” Odeyemi said, according to AFC.
NBET operates in the wholesale electricity market and is central to the government’s programme for resolving outstanding obligations to generators.
The Nigeria power sector bond also forms part of wider reforms aimed at changing how the country’s electricity market is financed and operated.
AFC said the government was pursuing reforms alongside investments in consumer metering and transmission infrastructure, as well as a transition toward bilateral electricity trading between wholesale market participants based on market-reflective pricing.
The scale of the programme is significant for Nigeria’s electricity industry. AFC said the completed programme is expected to affect about 5,398 megawatts of generation capacity and settle payments associated with 290,644.84 gigawatt-hours of electricity billed since February 2015.
The affected generation companies serve about 12 million active registered customers, according to AFC.
The government is seeking to use the debt programme to remove a financial constraint that has affected investment throughout the electricity supply chain. Generators require payments from the market to meet fuel, maintenance, financing and other operating costs.
The second bond therefore goes beyond settling historical invoices in the structure of the government’s reform programme. It is intended to provide a mechanism for converting verified unpaid claims into structured financial obligations while improving liquidity in the sector.
Still, clearing legacy liabilities does not by itself eliminate the factors that can generate new debts. Analysts and industry participants have continued to point to issues including electricity tariffs, collection losses, payment discipline and the financial position of market participants as important elements of the sector’s longer-term sustainability.
The government has described the debt programme as one component of a broader effort to establish a financially sustainable electricity market capable of attracting additional private investment.
For AFC, the transaction adds to its involvement in infrastructure financing and financial advisory work across Africa. The corporation said it has invested more than $19 billion in 36 African countries since its establishment in 2007 and has 48 member countries.
The completion of the Series 2 transaction brings the first phase of Nigeria’s power-sector multi-instrument programme to approximately ₦1.23 trillion in issuance.
The government has set the wider programme at ₦4 trillion, leaving further potential issuances as it works through verified obligations across the electricity supply industry.
The immediate focus will be on how the additional liquidity affects generators, gas suppliers and other participants in the electricity value chain, and whether broader market reforms can prevent new arrears from accumulating.
