A Return to Power: The Legacy of Babalola 2.0
Seventeen years ago, Dr. Rilwan Olanrewaju Babalola served as Nigeria’s Minister of Power during President Umaru Musa Yar’Adua’s Power Emergency. Today, he is the Special Adviser to the President and Chairman of the Task Force on Power Reset. While his title has changed, the crisis he faces remains the same — a power sector that is more organised and devolved than in 2009, yet still fiscally unstable and deeply problematic for Nigeria.
To understand this situation, one must look back to a pivotal decision made in 2009 when donor agencies introduced the 10-Step Action Plan for NESI Sector Viability. Babalola chose not to implement it, not because it was flawed, but because he viewed the power sector as a system requiring coordination across gas, transmission, finance, and distribution. In contrast, the Roadmap that followed treated the sector as a market to be built. This divergence in approach laid the foundation for many of the challenges that persist today.
The State as the Ultimate Risk Absorber
Babalola’s approach focused on managing the power sector as an interconnected system, while the subsequent Roadmap aimed to create a market-based model. This shift led to the creation of NBET, which acted as a middleman between generators and distributors, absorbing commercial risks that were meant to be distributed through privatisation. As a result, distribution companies faced weaker pressure to improve collections, while generation companies operated in a system where competition was muted due to guaranteed offtakers.
The state, though stepping back as an operator, remained a guarantor of the system. This created a situation where risk could not be fully decentralised, leading to failures across the entire chain — from gas supply to transmission and collections. The outcome is a formally market-based system in which the state continues to bear the ultimate risk.
Transmission Constraints and Grid Instability
Transmission has consistently been the most significant constraint in Nigeria’s electricity sector. Between 2015 and 2019, the national grid collapsed 79 times. In 2024, it collapsed 12 times, with each shutdown costing millions of US dollars in black-start expenses at the three major generation plants alone. While this represents an improvement over the extreme instability seen around 2010, the grid still struggles to evacuate more than 5,000–6,000 MW at peak, serving a population of over 220 million.
This level of generation is far below what Vietnam achieves in service of its manufacturing economy, which exported over $370 billion in goods in 2024. The comparison with Vietnam highlights a key difference: in Vietnam, 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 rather than an input into production. Per capita electricity consumption in Nigeria remains around 150 kWh per year — one-twentieth of Vietnam’s and one-sixth of Ghana’s.
The Fiscal Spiral of the Power Sector
The financial trajectory of the power sector is perhaps the most consequential legacy of the Roadmap years. Because tariffs never reached cost-reflective levels, the Multi-Year Tariff Order (MYTO) was introduced, effectively socialising the shortfall. The gap between what consumers paid and what electricity actually cost was covered 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% 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 the Presidential Power Sector Debt Reduction Programme in August 2025 — 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. However, this bond only retires legacy debt and does not close the monthly shortfall. Total sector liabilities — including legacy debt, new arrears, and World Bank lending — are estimated at ₦5.6 trillion and continue to rise.
The Hidden Costs of Subsidies
The petrol subsidy, at its 2022 peak of approximately ₦4.3 trillion, was funded substantially through NNPC’s crude revenues — a visible and debatable expense that was eventually removed. In contrast, 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% 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 aimed to reduce the sector’s dependence on the state, but instead, 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.
