Power sector reform — A 17-year reckoning
Babalola 2.0: Is past prologue? Seventeen years ago, Dr. Rilwan Olanrewaju Babalola was Nigeria’s Minister of Power during President Umaru Musa Yar’Adua’s Power Emergency. Today, he is Special Adviser to
- By Najim Animashaun
Babalola 2.0: Is past prologue?
Seventeen years ago, Dr. Rilwan Olanrewaju Babalola was Nigeria’s Minister of Power during President Umaru Musa Yar’Adua’s Power Emergency. Today, he is Special Adviser to the President and Chairman of the Task Force on Power Reset. Same man. Different title. Same inherited crisis. The sector he returns to in 2026 is more organised and devolved than the one he left in 2009 — but insolvent, and fiscally far more dangerous for Nigeria.
Understanding why requires going back to a choice made when donor agencies produced the 10-Step Action Plan for NESI Sector Viability in 2009, Babalola declined to implement it. Not because it was wrong. That divergence was not simply one of tools, but of governing logic. Babalola treated the power sector as a system to be run — a chain of interdependent constraints requiring coordination across gas, transmission, finance, and distribution. The Roadmap that followed the 10-Step NESI plan treated it as a market to be built.
The Plan approached the crisis in NESI by pursuing market liberalisation, assuming that market forces would discipline both the government and sector players. Babalola saw the solution as first and foremost a coordination problem — a tightly interdependent system in which gas supply, transmission, generation, distribution, and payments had to move together, or face cascading failures. These two different approaches stemming from the same diagnosis would shape nearly two decades.
The CBN moves in
The first adopter of the 10-Step NESI plan was the Central Bank of Nigeria, which, in March 2010’s Monetary Policy Committee approved a ₦500 billion infrastructure intervention fund — ₦300 billion of which was allocated as the Power and Airline Intervention Fund (PAIF), managed through the Bank of Industry with the Africa Finance Corporation as technical adviser. The PAIF stepped in to provide the long-term Naira financing to fill a gap identified in NESI. It channelled liquidity directly to power projects, mainly generation companies.
The CBN’s intervention signalled that the 10-Step plan’s framework had found a home elsewhere in government. By the time the Goodluck Jonathan administration published the Power Sector Roadmap in 2013 — the most consequential policy framework for the sector in a generation — the intellectual architecture of that earlier donor study had become foundational. The Roadmap formalised what the 10-Step plan had proposed: an unbundled sector, privatised distribution and generation companies, and critically, the establishment of the Nigerian Bulk Electricity Trading company (NBET) as a single-buyer intermediary between generators and distributors.
The roadmap's defining choice
NBET was the signature institutional innovation in the Roadmap. It was designed to solve a real problem: newly privatised distribution companies were not creditworthy. So NBET stepped in as the single buyer, providing the payment security that private investors required. The logic was sound. The consequences were structural.
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By standing between generators and distributors, NBET absorbed the commercial risk that privatisation was meant to distribute. Distribution companies, insulated from full upstream consequences, faced weaker pressure to improve collections. Generation companies, with a guaranteed offtaker, operated in a system where competition was muted. The state stepped back as operator but remained as guarantor — and in doing so, removed the pressure on distributors to collect and generators to compete.
The difficulty is that in Nigeria's electricity sector, risk cannot be fully decentralised because failure in any part — gas supply, transmission capacity, collections —produces failure across the entire chain. The result is what we observe today: a formally market-based system in which the state remains the ultimate absorber of risk.
Transmission remained the binding constraint that no intervention adequately addressed. Between 2015 and 2019 the national grid collapsed 79 times. In 2024, it collapsed 12 times, and each complete shutdown costs millions of US dollars in black-start expenses at the three major generation plants alone. While this represents an improvement from the extreme instability around 2010, the grid at peak continues to limit reliable evacuation beyond roughly 5,000–6,000 MW for a population of over 220 million — roughly one-third of South Africa's generation per capita, and a fraction of what Vietnam now deploys in service of a manufacturing economy that exported over $370 billion in goods in 2024, a 10 fold increase from exports in 2000.
The comparison with Vietnam is instructive beyond the numbers. Nigeria reformed its power sector in the expectation that industrialisation would follow. In Vietnam, the sequence ran in the opposite direction: industrial policy defined demand, and the power system was built to serve it. In Nigeria, electricity reform has been treated as an end in itself. Elsewhere, it is treated as an input into production. Per capita electricity consumption in Nigeria remains around 150 kWh per year — one-twentieth of Vietnam’s, one-sixth of Ghana’s.
The fiscal spiral
The sector's financial trajectory is the most consequential legacy of the Roadmap years. Because tariffs never reached cost-reflective levels, the Multi-Year Tariff Order (MYTO) overlaid the NBET model, effectively socialising the shortfall — the gap between what consumers paid and what electricity actually cost was met by the Federal Government through subsidies and revenue support for GENCOs and DISCOs due to accumulating arrears.
In 2024 alone, the government spent ₦1.95 trillion on electricity subsidies, covering 62.6 per cent of the total invoice issued by NBET to distribution companies. The CBN disbursed over ₦2.3 trillion in power sector intervention funds between 2015 and 2023 across multiple facilities. NBET's accumulated debt to generation companies and gas suppliers now stands at approximately ₦6.8–7 trillion and is growing at roughly ₦200 billion per month.
To address this overhang, President Tinubu approved in August 2025 the Presidential Power Sector Debt Reduction Programme — a ₦4 trillion bond issuance, the largest single financial intervention in the sector's history. The Series 1 bond of ₦590 billion was launched in December 2025. Yet the bond retires legacy debt; it does not close the monthly shortfall. Total sector liabilities — legacy debt, new arrears, and World Bank lending totalling $4.36 billion over the past decade — are estimated at ₦5.6 trillion and continue to rise.
The petrol subsidy, at its 2022 peak of approximately ₦4.3 trillion, was funded substantially through NNPC’s crude revenues — visible, debatable, and ultimately removed. The power sector’s obligations are spread across guarantees, bond issuances, CBN facilities and accumulating arrears: less visible, harder to remove, and compounding in ways that directly constrain the state’s fiscal headroom. Nigeria’s debt service-to-revenue ratio exceeded 100 per cent under the Buhari administration. The power sector’s fiscal feedback loop — tariff shortfalls generate arrears, arrears are securitised into debt, debt attracts interest, debt service crowds out capital investment, underinvestment sustains the underperformance that generated the shortfall, and adds to unsustainable debt service-to-revenue ratios.
What Babalola 2.0 inherits
Seventeen years of reform set out to reduce the sector's dependence on the state. It increased it. NBET, the bonds, the guarantees — these are the market failures. And the state has been filling the gap ever since. The missing piece was never the market. It was the industrial policy that would have given the market a purpose. Until the power sector is tied to what Nigeria produces and for whom it is produced, Babalola 2.0 — like Babalola 1.0 — will be managing a sector in search of an economy to serve.
Najim Animashaun (a former Special Assistant to the Honorary Special Adviser to President Yar’Adua on Energy and Strategic Matters 2008-2009, Non-Resident Fellow of the African Policy Research Institute)
