Beyond the grid: Why Nigeria’s power sector crisis is a crisis of political economy

Rethinking reform as a problem of institutions, incentives, and credible commitment — not just capital

By Adetayo Adegbemle

Nigeria’s power sector has been reformed on paper more times than perhaps any infrastructure sector on the continent. Unbundling in 2005. Privatisation in 2013. A succession of Multi-Year Tariff Orders. The Power Sector Recovery Programme. The Electricity Act 2023, with its promise of a multi-tier, federated market. Most recently, the CapEx Provision Account directive, the Band A compensation regime, net billing for embedded renewables, and now a wave of state electricity markets — sixteen states, at last count — going live under their own regulatory commissions. And yet the lived experience of the Nigerian household, factory, and hospital has barely moved. That persistence, across two decades and several genuinely different policy regimes, is itself the most important data point in the sector. It tells a political economist that the binding constraint on Nigeria’s power sector was never primarily engineering, and is not primarily capital. It is institutional: a set of incentive structures, credibility deficits, and unresolved distributional conflicts that any technically sound reform must reckon with before it can work.

This article makes that case and sets out five reforms — not electrical, but institutional — that the political economy of the sector demands.

Treat the liquidity crisis as a credibility problem, not an accounting one

The standard account of NESI’s liquidity shortfall blames Distribution Company (DisCo) underperformance: poor collections, high losses, weak metering. That account is not wrong, but it is incomplete in a way that matters for reform design. A privatised DisCo, GenCo, or gas supplier is a rational actor operating inside a market whose rules the government has repeatedly shown itself willing to override — through tariff freezes announced without cost-reflective justification, subsidy obligations left unfunded for years at a stretch, and settlement shortfalls passed down the value chain as an implicit tax on whoever is least able to walk away. Under those conditions, underinvestment, under-collection, and gaming of the market rules are not moral failures; they are the equilibrium response to a government that cannot credibly commit to honouring its own tariff and subsidy obligations.

The CapEx Provision Account order (NERC/2026/062) was, in this sense, a genuine institutional innovation: it converts a vague expectation that DisCos reinvest into an enforceable, ring-fenced obligation with real consequences for non-compliance. But a single enforceable rule aimed at DisCos, sitting inside a market where government-side obligations remain discretionary, only partially resolves the credibility problem. The reform that would actually change behaviour across the value chain is a symmetrical one: a legally binding, judicially enforceable mechanism — ideally anchored in the Electricity Act’s provisions rather than in circular ministerial directives — that obligates the Federal Government to fund tariff shortfalls and subsidy commitments on a fixed schedule, with automatic penalties for late payment. Commitment devices work in both directions or they do not work at all.

Make metering a property-rights reform, not a rollout target

Nigeria’s metering gap is usually discussed as a logistics and financing problem — not enough meters procured, not enough capital for the Meter Asset Providers scheme, not enough local manufacturing capacity. All true. But from a political economy standpoint, an unmetered connection is best understood as an unassigned property right. Where consumption cannot be measured, both the DisCo and the customer have an incentive to contest, under-report, or informally negotiate the bill — and that contest, replicated across millions of connections, is what produces estimated billing disputes, revenue leakage, and the collapse of trust that makes cost-reflective tariffs politically toxic.

Local meter manufacturing matters here not only for foreign-exchange savings but because it changes the political economy of the rollout: a domestically produced, domestically serviced meter is harder to politicise as an extractive import and easier to defend on the floor of a state assembly. Reform should therefore pair accelerated metering finance with an explicit local-content floor for meter manufacturing, and — critically — should treat metering completion as a precondition for, not a consequence of, further tariff adjustments in any band. Asking consumers to accept cost-reflective pricing before they can verify their own consumption is asking them to accept a contract they cannot audit.

Give NERC, NISO independence that survives a change of minister

Regulatory independence in Nigeria’s power sector has always been independence by convention rather than by design — real when a commissioner is assertive, illusory when political pressure is applied through appointments, budget approval, or informal instruction. NERC’s dissolution of the KAEDC board under Order NERC/2026/086 is a useful test case: it demonstrated that the Commission can act decisively against a non-performing DisCo when it chooses to. The open question is whether that decisiveness is a durable institutional capacity or a one-off exercise of will by the current leadership. The same question applies with even more force to the Nigerian Independent System Operator’s (NISO) relationship with the Nigerian Bulk Electricity Trading Company (NBET): an unbundled market cannot function if the entity responsible for dispatch and settlement remains financially and administratively dependent on a counterparty whose interests it is meant to arbitrate.

The reform that would make independence durable is structural, not personal: ring-fenced, statutorily protected funding for NERC and NISO that does not pass through annual budgetary negotiation with the executive; fixed-term, for-cause-only removal protections for commissioners, genuinely enforced; and a public, reasoned-order requirement for every major directive, so that regulatory decisions are reviewable by courts and by the public on their merits rather than defensible only by reference to who currently holds office.

Manage decentralisation as a coordination problem, not a devolution event

The Electricity Act 2023’s permission for states to establish their own electricity markets is, in principle, a sound subsidiarity reform: it lets states closer to distribution-level problems regulate distribution-level outcomes. But sixteen states going live with independent regulatory commissions inside a single national grid, without a settled framework for cross-border wheeling, harmonised technical standards, and dispute resolution between federal and state regulators, creates exactly the coordination failure that federal systems are prone to — a race to the bottom on tariffs to court political favour in one state, undermining cost-reflectivity in the interconnected market as a whole. The Senate Committee on Power and NERC leadership have both signalled they see this risk, which is encouraging, but signalling is not the same as a binding protocol.

What is needed is a harmonisation instrument — agreed now, before more states transition — that fixes minimum technical and market-conduct standards below which no state regulator may go, establishes a mandatory interstate settlement and dispute mechanism with NERC as arbiter of last resort, and requires new state markets to publish their tariff methodology against the same cost-reflectivity benchmark used nationally. Decentralisation without harmonisation does not produce fifty-six competing solutions; it produces one national market quietly re-fragmented by regulatory arbitrage.

Commission the political economy studies the technical audits cannot replace

NERC’s new Guidelines on Technical Audit of the Transmission System, and its 6.5 percent loss-reduction target for TCN, are necessary engineering discipline. But a technical audit will tell you where losses occur, not why a DisCo has persistently failed for a decade despite three changes of core investor, or why vandalism of transmission infrastructure recurs in the same corridors regardless of security spending, or why industrial consumers continue to self-generate at three to four times the grid tariff rather than reintegrate even where supply has notionally improved. Those are questions about incentive structures, local political settlements, and trust — the proper domain of political economy analysis, not load-flow modelling.

A DisCo like KAEDC, now under a dissolved board, is a case in point: replacing management without understanding the ownership, financing, and local political incentives that produced a decade of underperformance risks reproducing the same failure under a new name in three years. Regulators and the National Assembly’s power committees should routinely commission independent political economy studies alongside technical and financial audits whenever a utility is placed under intervention, and should treat their findings as a precondition for approving any new core investor or restructuring plan.

The common thread

Each of these five reforms addresses the same underlying problem from a different angle: Nigeria’s power sector will not stabilise through better engineering or more capital alone, because its dysfunction is substantially the product of actors — government, DisCos, GenCos, state regulators, even consumers — behaving rationally within a set of institutions that do not currently reward cooperation, transparency, or long-horizon investment. The reforms that will matter most over the next several years are the ones that change what it is rational to do inside the Nigerian Electricity Supply Industry: symmetrical, enforceable commitment devices; metering as a property-rights foundation; regulatory independence that survives a change of administration; a harmonisation protocol for decentralisation; and a habit of asking why, institutionally, before asking how, technically. Nigeria has no shortage of technically literate reform documents. What it has lacked is reform that takes its own political economy seriously enough to design around it.

Adetayo Adegbemle is the Executive Director and Convener of PowerUp Nigeria, a consumer rights and power sector policy advocacy organisation.