The Nigerian Economic Summit Group has advised the federal government to attach strict conditions before extending fiscal support to underperforming electricity distribution companies, arguing that unconditional protection has removed the incentive for these companies to improve.
The advice appeared in the group’s recent publication, “Economic and Policy Review Journal H1 2026, Volume 24 Number 1,” in a paper titled “Beyond Reform Announcements: The Role of Institutional Credibility in the Viability of the Nigerian Electricity Sector,” authored by Eyo Ekpo and Taiwo Odugbemi of Excredite Consulting Limited in Abuja. The authors argued that the incentive for distribution companies to improve performance has been blunted by the federal government’s practice of shielding them from the consequences of underperformance, allowing companies that miss their targets to continue receiving the same relief as those that have invested in efficiency.
“Perhaps the most corrosive institutional failure is the provision of financial support without enforceable conditions,” the paper stated. “Through the Nigerian Bulk Electricity Trading Company payment deferrals, sovereign guarantees, and direct fiscal transfers, the federal government has repeatedly insulated sector participants from the consequences of underperformance. This has created a classic moral hazard problem. In practice, a support regime of this kind removes the differential reward for performance: operators that miss targets continue to receive relief on essentially the same terms as those that invest in efficiency, so the incentive to improve is blunted regardless of intent.”
The authors noted that by 2025, distribution companies’ arrears to the bulk trading company were estimated at 2.6 trillion naira, while government subsidy obligations exceeded 3.3 trillion naira. “These figures reflect a settlement system that has never functioned as intended because its foundational conditions, particularly cost reflective tariffs, full metering, and enforceable contracts, were never established, the same preconditions India’s framework made non negotiable,” they wrote, urging Nigeria to emulate India’s Revamped Distribution Sector Scheme, which links financial support directly to measurable performance indicators including reductions in technical and commercial losses, improved cost recovery, and smart meter deployment. “The results have been more encouraging. National technical and commercial losses in India declined from 21.91 per cent in the 2021 financial year to 16.16 per cent in the 2025 financial year, demonstrating the value of tying financial support to verifiable operational improvements rather than relying solely on debt relief,” the paper noted.
The authors also said the effectiveness of Nigeria’s power sector reform has been undermined by failures in gas to electricity supply and by the fact that the Nigerian Electricity Regulatory Commission lacks genuine regulatory authority. “The NERC was designed as an independent, technically competent regulator with clear statutory responsibilities. In practice, its authority has been repeatedly constrained by political intervention, particularly in tariff setting. Beyond tariffs, regulatory enforcement against non compliant Discos has been weak. Discos have routinely missed performance targets without facing proportionate sanctions,” they wrote, clarifying that by sanctions they mean the license condition enforcement tools already available to the commission under the Electricity Act 2023, such as performance improvement plans with binding milestones, financial penalties for missed loss reduction and metering targets, and license review for persistent non compliance, rather than any new instrument. “This is not primarily a technical capacity issue; it is a political economy constraint. Regulatory effectiveness requires insulation from political pressures, particularly where decisions impose costs on influential stakeholders,” they said.
The paper further noted that thermal power plants in Nigeria are operating at roughly a third of capacity due to unreliable gas supply, despite the country holding Africa’s largest proven gas reserves. “The core issue is the absence of coordinated planning and aligned incentives across key institutions, namely, the Ministry of Power, Ministry of Petroleum Resources, the Office of the Special Adviser to the President on Energy, now redesignated Oil and Gas, the Nigerian National Petroleum Company, NERC and the Nigerian Midstream and Downstream Petroleum Regulatory Authority. Gas supply agreements are typically structured on a best endeavors basis, lacking enforceable take or pay provisions. This means gas producers are rationally incentivized to priorities export and industrial markets where payment is more secure,” the authors wrote, arguing that what ultimately converts resources into reliable supply is coordinated governance, and calling for a single authority with clear accountability for aligning gas allocation, generation and transmission investment, something they said Nigeria’s fragmented institutional arrangement currently lacks.
