The World Bank has stated its opinion on the Federal Government’s plan to settle the N3.3tn debts owed to power-generating companies, with the bank noting that the initiative effectively converts long-standing liabilities in the electricity sector into sovereign debt obligations that must be fully recognised in Nigeria’s fiscal accounts.

It also cautioned the Federal Government over its newly introduced N4tn bond programme aimed at clearing debts in Nigeria’s power sector.

This position was contained in its latest Nigeria Development Update titled, “Nigeria’s Tomorrow Must Start Today – The Case for Early Childhood Development,” obtained by our correspondent on Wednesday, where the global lender stressed that the structure of the programme places a direct and recurring burden on government finances, despite offering short-term liquidity relief to the electricity value chain.

Under a sub-section titled “Treating the sovereign-guaranteed bond programme as public debt,” the World Bank examined the Federal Government’s plan to resolve legacy arrears owed to power generation companies and gas suppliers through a securitisation framework backed by sovereign guarantees.

The report noted that the government had launched a N4tn multi-tranche bond programme under the Presidential Power Sector Debt Reduction Programme, targeting debts accumulated between 2015 and April 2025.

According to the bank, the programme commenced with a N590bn bond issuance directly allotted to generation companies, featuring a seven-year tenor and a fixed coupon, issued at a yield of 17.5 per cent.

The report stated, “The Federal Government has launched a N4tn sovereign-guaranteed bond programme to clear legacy arrears in the power sector.

In 2025, the FGN initiated a multi-tranche bond program under the Presidential Power Sector Debt Reduction Programme to settle verified debts owed to power generation companies and gas suppliers from 2015 to April 2025.

“The programme commenced with a N590bn first bond issuance directly allotted to GenCos. The inaugural series carried a 7-year tenor, a fixed coupon structure, and was issued at a yield of 17.5 percent.

“Although the bonds are issued by Nigeria Bulk Electricity Trading Plc Finance Company Plc (a Special Purpose Vehicle of NBET), they are fully guaranteed by the Federal Government of Nigeria. The structure converts accumulated payables into formal sovereign debt obligations serviced by the federal budget.”

Although the bonds were issued through a financing vehicle linked to the Nigeria Bulk Electricity Trading Plc, the World Bank emphasised that the full sovereign guarantee by the Federal Government effectively transfers the financial risk to the public sector.

It added, “By securitising arrears, the program spreads repayment over time and provides liquidity relief to the electricity value chain; however, it also transforms existing liabilities into explicit debt instruments. Debt service, both interest and principal, will be paid by the FGN from budgetary resources over the life of the bonds.”

The World Bank further explained that the implication of this structure is that both interest and principal repayments on the bonds would be funded directly from government revenues over the life of the instrument.

Highlighting the fiscal implications, the institution warned that the arrangement creates a sustained claim on public finances that must be carefully integrated into Nigeria’s fiscal planning frameworks.

Crucially, the World Bank stressed that, in line with international reporting standards, the bond programme qualifies as Public and Publicly Guaranteed debt and should be transparently recorded in Nigeria’s debt statistics.

“As such, the associated debt service flows create a direct and recurring claim on the federal treasury and must be incorporated into annual budgets, medium-term fiscal frameworks, and cash management planning. As per international standards, the program qualifies as Public and Publicly Guaranteed debt and should be transparently recorded as such.

“The explicit sovereign guarantee places ultimate credit risk on the federal government, meeting the international criteria for classification as PPG debt, given that the new debtor acquires an effective financial claim on the original debtor,” the report added.

The report explained that this classification arises because the government, by guaranteeing the bonds, assumes the financial obligations tied to the underlying debts, effectively stepping into the shoes of the original debtor.

It continued, “Accordingly, both the outstanding stock and future debt service obligations should be reflected in Nigeria’s central government debt statistics and integrated into debt sustainability analysis.

The institution stressed that proper disclosure is critical for assessing Nigeria’s fiscal health and long-term debt sustainability. “Transparent recognition is essential to accurately assess fiscal risks, contingent liabilities, and the medium-term debt burden,” it warned.

The PUNCH reports that the World Bank’s position underscores a critical trade-off in the government’s strategy. While the bond programme may stabilise the power sector by clearing arrears and improving cash flow to GenCos and gas suppliers, it also adds pressure to an already stretched fiscal position.

It would also increase Nigeria’s total public debt, which stood at $110.3bn, equivalent to about N159.2tn as of December 31, 2025.

Nigeria’s power sector has long been plagued by liquidity challenges, with generation companies and gas suppliers accumulating trillions of naira in unpaid invoices due to tariff shortfalls, inefficiencies, and market imbalances.

Successive governments have struggled to address these arrears, which have constrained investment and limited the sector’s ability to deliver a stable electricity supply. The latest bond programme represents one of the most ambitious attempts to resolve these legacy debts, signalling a shift towards market-based financial solutions.

President Bola Tinubu on Sunday approved the payment plan to finally settle the outstanding debts under the Presidential Power Sector Financial Reforms Programme.

According to a statement by the Special Adviser to the President on Information and Strategy, Bayo Onanuga, the debt repayment plan followed the final review of the legacy debts that have beset the power sector for more than a decade.

“The long-standing debts accumulated between February 2015 and March 2025. Following verification, N3.3tn has been agreed upon as a full and final settlement, ensuring a fair and transparent resolution,” the statement said.

Onanuga disclosed that implementation has begun, with 15 power plants signing settlement agreements totalling N2.3tn. “The Federal Government has already raised N501bn to fund these payments. Out of the amount, N223bn has been disbursed, with further payments underway,” Onanuga disclosed.

However, the World Bank’s warning highlights the importance of balancing sectoral reforms with fiscal prudence, particularly as Nigeria grapples with rising public debt and mounting debt service obligations.