Nigeria’s protracted electricity reform programme is facing renewed pressure as tariff politics, deep structural weaknesses and a mounting liquidity crisis continue to undermine the sustainability of the power sector, a new policy brief by the Centre for the Promotion of Private Enterprise (CPPE) has warned.

In the policy brief, dated December 14, 2025, and signed by CPPE’s Chief Executive Officer, Dr Muda Yusuf, the think tank said the electricity industry remains one of the most complex and challenging components of Nigeria’s economic reform agenda, despite years of restructuring efforts.

Titled “Nigeria’s Power Sector Reform: Managing Complexity, Liquidity, and Political Economy Constraints,” the document described the sector’s challenges as multidimensional, ranging from political economy constraints and tariff distortions to weak investor capacity, transmission bottlenecks and a persistent liquidity crisis across the electricity value chain.

A key concern identified in the brief is the difficulty of implementing a fully cost-reflective tariff regime. CPPE noted that electricity tariffs remain capped largely due to social and political sensitivities, particularly in the aftermath of recent macroeconomic reforms, a situation that has entrenched subsidy dependence and widened the sector’s financing gap.

According to the think tank, the inability to fully reflect costs in tariffs has compelled the Federal Government to intervene repeatedly to prevent system collapse and sustain electricity supply. However, it warned that the current approach, with sector liabilities estimated at about N4 trillion, is fiscally unsustainable without deeper structural reforms, improved transparency and credible implementation strategies.

CPPE stressed that power sector reform is critical to Nigeria’s economic competitiveness, industrial growth and social welfare, but progress has been slow and uneven. It explained that the tightly interconnected nature of the electricity value chain means that weaknesses in any segment—gas supply, generation, transmission or distribution—quickly cascade across the system.

Recent macroeconomic measures, including foreign exchange unification and the removal of fuel subsidies, have further complicated the reform landscape by intensifying cost-of-living pressures and strengthening public resistance to tariff adjustments in the power sector.

On the political economy of electricity pricing, CPPE described tariff reform as one of the most sensitive and technically demanding aspects of the current reform programme.

“Without cost-reflective pricing, the sector cannot generate sufficient liquidity to sustain operations or attract new investment,” the policy brief stated.

It added that the resulting subsidy burden has forced the government to absorb inefficiencies and revenue shortfalls, effectively transferring financial risks onto the public balance sheet.

Beyond tariff issues, CPPE highlighted lingering structural weaknesses associated with the post-privatisation framework of the sector. These include concerns about the technical and financial capacity of some private investors, transparency gaps during the privatisation process, and persistent governance and operational inefficiencies, particularly among electricity distribution companies (Discos) and the Transmission Company of Nigeria (TCN).

The brief noted that these shortcomings have constrained service delivery, weakened revenue collection and limited operators’ ability to invest in network upgrades and reduce technical and commercial losses.

Transmission infrastructure remains a major bottleneck. CPPE observed that TCN, which remains wholly government-owned, continues to grapple with operational inefficiencies, inadequate investment and slow network expansion, all of which restrict generation capacity utilisation and reduce system reliability.

While acknowledging that recent interventions under the Presidential Power Initiative have helped reduce the frequency of grid collapses, the think tank said weaknesses in the transmission segment continue to exacerbate liquidity and service delivery challenges across the sector.

The policy brief also underscored the severity of the liquidity crisis, noting that financial distress in one segment quickly spreads to others. Generating companies, it said, struggle to pay gas suppliers, while Discos are unable to generate enough revenue to meet their obligations to Gencos, further eroding investor confidence.

Given the scale of the crisis, CPPE said government financial intervention has become unavoidable in the short term. It pointed to recent bond issuances to settle outstanding obligations, particularly to gas suppliers and generation companies, as necessary steps to avert a breakdown of electricity supply.

“Such interventions are necessary to maintain power availability for households and businesses while longer-term reforms are gradually implemented,” the document stated.

Despite the challenges, CPPE identified some positive developments, noting that an abrupt removal of subsidies may be politically unrealistic. It advocated phased and incremental reforms, citing measures such as differentiated tariff bands, increased decentralisation with states taking on greater regulatory and operational roles, the expansion of independent power projects, and growing adoption of renewable energy solutions by households and businesses.

However, the think tank warned that the current financing model is unsustainable, with sector liabilities nearing N4 trillion and continuing to rise. It called for outstanding claims to be properly verified, subjected to rigorous audits and managed transparently.

Drawing parallels with Nigeria’s experience with fuel subsidies, CPPE cautioned that subsidy regimes are prone to abuse without strong oversight, making transparency and accountability critical to any continued government support for the power sector.

Among its recommendations, CPPE urged the adoption of a clear and predictable roadmap towards cost-reflective tariffs, supported by targeted social protection measures for vulnerable consumers. It also called for stronger governance and accountability in subsidy management, debt verification and financial settlements.

The brief further recommended stricter enforcement of performance benchmarks for Discos, including recapitalisation, technical upgrades and loss reduction, as well as exploring alternative management or concession models for TCN to improve efficiency and investment.

CPPE also emphasised the need to support decentralisation, independent power projects and renewable energy adoption to reduce pressure on the national grid, while insisting that government financial support should be time-bound and tied to measurable reform milestones to limit fiscal exposure.

While acknowledging that power sector reform is inherently complex and incremental, CPPE warned that without decisive action to address structural inefficiencies, strengthen governance and enforce fiscal discipline, Nigeria’s electricity sector will remain unsustainable and ill-equipped to support long-term economic growth and development.