The World Bank has raised concerns over the Federal Government’s ₦4tn (US$2.9bn) bond programme designed to clear long-standing debts in Nigeria’s electricity sector, warning that the initiative effectively converts legacy liabilities into sovereign debt that must be fully reflected in the country’s fiscal accounts.
The caution is contained in the bank’s latest Nigeria Development Update, titled “Nigeria’s Tomorrow Must Start Today – The Case for Early Childhood Development,” in which it assessed the government’s plan to resolve arrears owed to power generation companies and gas suppliers.
According to the report, while the bond programme could provide immediate liquidity relief to companies across the electricity value chain, it also places a direct and recurring burden on public finances, with debt servicing obligations expected to be borne by the Federal Government over several years.
The World Bank examined the initiative under a section titled “Treating the sovereign-guaranteed bond programme as public debt,” where it argued that the financing structure should not be treated as a separate commercial arrangement, but rather as a full public sector liability.
At the centre of the concern is the government’s effort to settle an estimated ₦3.3tn (US$2.4bn) debt owed to generation companies, with the broader programme targeting about ₦4tn (US$2.9bn) in verified arrears accumulated between 2015 and April 2025.
The report said the debt-clearing plan began with a ₦590bn (US$427m) inaugural bond issuance directly allotted to power generation companies. That first tranche carried a seven-year tenor, a fixed coupon structure, and was issued at a yield of 17.5 per cent.
Although the bonds were issued by Nigeria Bulk Electricity Trading Plc Finance Company Plc, which serves as a Special Purpose Vehicle (SPV) of NBET, the World Bank stressed that the bonds are fully guaranteed by the Federal Government of Nigeria, making the arrangement a de facto sovereign obligation.
“The Federal Government has launched a ₦4tn sovereign-guaranteed bond programme to clear legacy arrears in the power sector,” the report stated.
It explained that while the use of a financing vehicle may create the appearance of separation from direct federal borrowing, the full sovereign backing means the ultimate repayment responsibility lies squarely with government.
In effect, the programme restructures old unpaid obligations into formal debt instruments that must now be serviced through the national budget.
“Although the bonds are issued by Nigeria Bulk Electricity Trading Plc Finance Company Plc… they are fully guaranteed by the Federal Government of Nigeria,” the World Bank noted.
The institution said this means both interest and principal repayments will be funded from budgetary resources over the life of the bonds, creating what it described as a sustained fiscal commitment.
By securitising the arrears, the government may reduce short-term pressure on the power sector and ease cash flow constraints for generation companies and gas suppliers, many of whom have long complained that mounting unpaid invoices were threatening operational sustainability.
However, the World Bank warned that the relief comes at a cost.
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“By securitising arrears, the programme spreads repayment over time and provides liquidity relief to the electricity value chain; however, it also transforms existing liabilities into explicit debt instruments,” the report said.
The lender therefore urged authorities to treat the bond programme with full transparency and include it in Nigeria’s official debt reporting framework.
It stressed that under international reporting standards, the instrument clearly qualifies as Public and Publicly Guaranteed debt, and should be recognised as such in the country’s debt statistics.
That classification is significant because it means the liabilities must be accounted for in fiscal planning, debt sustainability analysis, and medium-term expenditure frameworks.
