The Federal Government’s debt owed to electricity generation companies has risen to N1.05tn in the first half of 2025.

This is the outstanding power subsidy payment to electricity generation companies, covering the first and second quarters of the year.

A report by the Nigerian Electricity Regulatory Commission’s Second Quarter Report for 2025 showed that the government incurred a subsidy obligation of N514.35bn in Q2 2025, following N536.40bn in Q1, bringing the total to over N1.05tn in the first six months of the year.

This is coming at a time when the Federal Government was reported to have approved a N4tn debt to clear the legacy debts owed to the power generation companies.

According to NERC, the rising obligation is due to the continued absence of cost-reflective tariffs, forcing the government to pay the difference between the actual cost of generation and what consumers are charged.

“In the absence of cost-reflective tariffs, the government undertakes to cover the resultant gap (between the cost-reflective and allowed tariff) in the form of tariff subsidies,” the report stated.

NERC explained that for ease of administration, “the subsidy is only applied to the generation cost payable by DisCos to the Nigerian Bulk Electricity Trading Plc at source in the form of a DisCo’s Remittance Obligation.”

The commission noted that the DRO regime, which replaced the Minimum Remittance Obligation framework in January 2024, was introduced to prevent unpaid tariff subsidy debts from encumbering the balance sheets of the DisCos, thereby preventing them from raising finance to undertake critical investments in their distribution network.

Under this framework, NBET invoices the portion of GenCo costs not covered by DRO (tariff subsidy) to the Federal Ministry of Finance for immediate settlement, NERC said.

The report disclosed that the government incurred a subsidy obligation of N514.35bn in Q2, representing a 4.11 per cent reduction compared to N536.40bn in Q1, largely driven by a 4.22 per cent reduction in energy offtake by DisCos.

“Due to the absence of cost-reflective tariffs across all DisCos, the government incurred a subsidy obligation of N514.35bn,” the report said.

It added that although the subsidy obligation of the government decreased in naira terms (-N22.04bn), it accounted for 59.60 per cent of the total GenCo invoice, which is a 0.44 percentage point increase compared to 2025/Q1.

During the quarter, GenCos invoiced N863.02bn for energy supplied to DisCos, while the DRO-adjusted invoice from NBET to the DisCos was N348.66bn.

The total remittance from DisCos stood at N333.90bn, translating to a 95.77 per cent remittance performance, slightly below the 95.79 per cent recorded in the first quarter.

The report further showed that all DisCos achieved 100 per cent remittance performance, except Jos (60.85 per cent) and Kaduna (41.84 per cent).

NERC stated that Kaduna (+4.08 percentage points), Abuja (+1.57 pp) and Enugu (+0.73 pp) DisCos recorded improvements compared to Q1, while “Jos DisCo recorded a decrease (-9.38 pp) in remittance performance.”

Monthly subsidy obligations during the quarter were put at N175.35bn in April, N176.87bn in May, and N162.12bn in June.

“Monthly subsidy obligation during the quarter: April – N175.35bn, May – N176.87bn and June – N162.12bn. 4.22 per cent reduction in energy offtake by DisCos between 2025/Q2 and 2025/Q1 was the key driver for the reduction in the total GenCo invoice (N863.02bn vs N906.77bn) and subsidy (N514.35bn vs N536.40bn) across the period,” the report said.

NERC warned that the “current open-ended subsidy regime leaves the FGN exposed to indeterminate subsidy obligation because of volumetric risk and generation cost variation arising from changes in supply mix,” saying more thermal means higher generation cost.

It was gathered recently that President Bola Tinubu had approved a N4tn bond to clear the legacy debts owed to power generation companies.

Recall that in July 2025, President Tinubu met with chief executives of all power generation companies, where he emphasized the need for patience from GenCos and financial institutions.

The President had also disclosed that government agencies were engaging audit and legal firms to scrutinize the N4tn debt claims.

The Minister of Power, Adebayo Adelabu, said last week that the president had approved a bond to defray the debts.

However, GenCos said they have yet to be carried along on how the N4tn bond would be used in settling debts owed to each company. (The PUNCH)