Dike Onwuamaeze
The Nigerian Economic Summit Group (NESG) has advised the federal government to impose conditions that would deny fiscal support to underperforming electricity Distribution Companies (Discos).
The advice was contained in a recent publication of the NESG’s titled “Economic and Policy Review Journal H1’ 2026, Volume 24: Number 1.”
A paper in the publication titled “Beyond Reform Announcements: The Role of Institutional Credibility in the Viability of the Nigerian Electricity Sector,” authored by Mr. Eyo O. Ekpo and Dr. Taiwo H. Odugbemi of Excredite Consulting Limited, Abuja, Nigeria, stated that the incentive to improve performance was blunted by the federal government’s protection of Discos from the consequences of underperformance.
This protection, according to the authors, has allowed Discos that missed their performance targets to continue to receive the same government’s relief with companies that have invested in efficiency.
They said: “Perhaps the most corrosive institutional failure is the provision of financial support without enforceable conditions.
“Through the Nigerian Bulk Electricity Trading Company (NBET) 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 recalled that by 2025, Discos’ arrears to NBET were estimated at N2.6 trillion while government subsidy obligations exceeded N3.3 trillion.
“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 stated.
They, therefore, urged the government to emulate the India government’s Revamped Distribution Sector Scheme (RDSS), which linked financial support directly to measurable performance indicators, including reductions in Aggregate Technical and Commercial (AT&C) losses, improvements in cost recovery, and the deployment of smart meters.
“The results have been more encouraging. National AT&C losses (in India) declined from 21.91 percent in FY2021 to 16.16 percent in FY2025, demonstrating the value of tying financial support to verifiable operational improvements rather than relying solely on debt relief.”
The paper stated that the effectiveness of the Nigeria’s power sector reform was hobbled by gas-to-electricity failure and the reality that the Nigerian Electricity Regulatory Commission (NERC) is bereft of regulatory authority.
The authors stated: “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.
“By sanctions, we mean that the licence-conditions enforcement already available to NERC under the Electricity Act 2023, performance improvement plans with binding milestones, financial penalties for missed ATC&C and metering targets, and, for persistent non-compliance, licence review, rather than any new instrument.
“Discos here face precisely the liquidity constraints, low metering, and high ATC&C losses that conditional sanctions are designed to correct. 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 noted that thermal plants in Nigeria are operating at roughly one-third of capacity due to unreliable gas supply even though the country holds 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 (Energy) (now re-designated to “Oil and Gas”), the Nigerian National Petroleum Company (NNPC) Ltd., NERC and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
“Gas supply agreements are typically structured on a ‘best endeavours’ basis, lacking enforceable take-or-pay provisions.
“This means gas producers are rationally incentivised to prioritise export and industrial markets where payment is more secure,” they said
According to them, “what converts resources into reliable supply is coordinated governance.”
They, therefore, called for “a single authority with clear accountability for aligning gas allocation, generation, and transmission investment, of the kind Nigeria’s fragmented institutional arrangement currently lacks.”