The Federal Government has approved implementation frameworks for a ₦4 trillion government-backed bond aimed at clearing verified arrears owed to power generation companies (GenCos) and gas suppliers, a long-standing debt that has stalled investment and weakened the electricity sector.

In a statement on Wednesday, the Special Adviser to the President on Energy, Olu Verheijen, said the decision followed meetings between federal officials and GenCo executives to finalize debt-settlement arrangements. The meeting was attended by the Minister of Finance, Wale Edun, and the Minister of Power, Bayo Adelabu.

“This intervention, the largest in over a decade, addresses a legacy debt overhang that has constrained investment, weakened utility balance sheets, and hindered reliable power delivery across the country,” the statement read.

The ₦4 trillion debt represents accumulated unpaid invoices dating back to 2015, coupled with recent subsidy shortfalls. According to GenCos, the sector’s total liabilities had surged to about ₦5.2 trillion by mid-2025, including ₦2 trillion in legacy debts, ₦2 trillion from 2024 subsidy gaps, and ₦1.2 trillion in new accruals within the first half of 2025.

Weak revenue remittances and persistent underpayments across the power value chain have deepened the crisis. Despite monthly GenCo invoices averaging ₦250 billion, the federal budget for 2025 allocated only ₦900 billion to the sector.

Structural inefficiencies, including transmission losses, grid instability, and stranded generation capacity, have further eroded revenue. The Association of Power Generating Companies (APGC) estimates total sector debt has climbed to ₦5.6 trillion when accounting for unrealized value from lost generation.

The government-backed bond aims to convert cash liabilities into a long-term financial instrument, giving the government fiscal flexibility while providing GenCos with guaranteed repayment over time.

The plan, endorsed by President Bola Tinubu and approved by the Federal Executive Council, will focus on verified arrears only. Officials say negotiations will determine interest rates, maturity periods, and payment schedules to ensure sustainability.