The Federal Government’s debt to electricity generation companies hit N1.05 trillion in the first half of 2025, reflecting the cost of subsidizing power tariffs in the absence of cost-reflective pricing, according to the Nigerian Electricity Regulatory Commission (NERC).
The outstanding subsidy payments cover the first and second quarters of 2025. NERC’s Second Quarter Report shows the government incurred N536.40 billion in Q1 and N514.35 billion in Q2, bringing the total to over N1.05 trillion for the first six months of the year.
The rising subsidy obligation is linked to the continued absence of cost-reflective tariffs, forcing the government to cover the difference between the actual cost of electricity generation and the rates charged to consumers. “In the absence of cost-reflective tariffs, the government undertakes to cover the resultant gap in the form of tariff subsidies,” the report noted.
Under the DisCo Remittance Obligation (DRO) framework, which replaced the Minimum Remittance Obligation system in January 2024, the government ensures unpaid tariff subsidy debts do not burden distribution companies’ balance sheets, allowing them to invest in their networks. NBET invoices the portion of GenCo costs not covered by DRO to the Federal Ministry of Finance for immediate payment.
During Q2, GenCos invoiced N863.02 billion for energy supplied to DisCos, while the DRO-adjusted invoice was N348.66 billion. Total remittance from DisCos was N333.90 billion, representing a 95.77% remittance performance—slightly below the 95.79% recorded in Q1. Only Jos (60.85%) and Kaduna (41.84%) DisCos failed to achieve full remittance.
Monthly subsidy obligations were N175.35 billion in April, N176.87 billion in May, and N162.12 billion in June. The slight reduction in Q2 subsidy was due to a 4.22% decrease in energy offtake by DisCos.
NERC cautioned that the open-ended subsidy system exposes the government to indeterminate obligations due to fluctuations in generation costs and supply mix. Thermal power, in particular, increases generation costs.
President Bola Tinubu recently approved a N4 trillion bond to clear legacy debts owed to GenCos. During a July 2025 meeting with power company executives, Tinubu urged patience while government agencies, along with audit and legal firms, review the N4 trillion claims. GenCos, however, have yet to receive clarity on how the bond will be allocated among them.
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Reporting by Joshua Chinonye in Lagos, Nigeria.
