By Tobi Oluwatola

The Gospel of 1990 and the mirage of instant markets
After the fall of the Berlin Wall, a particular kind of certainty settled over the offices of the World Bank in Washington, the Asian Development Bank in Manila, and the consulting houses of London. These people had watched the all-powerful Soviet Union dissolve, and they drew from it a lesson about the state: that it could not be trusted to run anything; a market could. Electricity, which had been a public service almost everywhere for most of the century, sat near the top of their list.

In what now feels like hubris, the prescription they wrote was the same for Lagos as for Lima, for Nairobi as for Manila. Break up the state utility. Create an independent regulator. Sell the power plants and the distribution networks to private investors. Let a competitive wholesale market set the price. It was presented not as one theory among several but as settled science, the way a doctor might describe the treatment for malaria. Private capital would bring discipline, the discipline would bring solvency, and solvency would bring light. Hurray, up NEPA!

Reality was less obedient. When the World Bank looked back over 25 years of this experiment in Rethinking Power Sector Reform in the Developing World (Foster and Rana, 2020), the finding was sobering. Of the 88 developing countries that set out on this road, barely a dozen completed the full model. The rest stopped somewhere in the middle, hemmed in by political resistance, half-finished reforms and utilities that were still bleeding money.

A tale of two Indias: The caution of Odisha and the pragmatism of Andhra Pradesh
Many developing countries, including Nigeria, drank the Kool-Aid; China did not. Some states in India did, others didn’t–providing a natural randomized control trial. Two neighboring Indian states, at the turn of the millennium, show just how differently the same recipe can turn out.

Odisha did everything the donors asked. It unbundled its state electricity board and in 1999 became the first state in India to privatise its distribution companies. Foreign consultants produced elegant multi-year tariff models, and private concessionaires took the keys.

It fell apart quickly. The sale had been built on baseline data that was, to put it politely, generous. The new owners arrived to find that technical and commercial losses were not the tidy figures in the bid documents but something closer to a hole in the ground. When they tried to disconnect non-paying customers or raise tariffs to reflect the actual cost of power, the political backlash was immediate. Starved of capital and unable to charge a cost-reflective price, the first operator walked away within two years, and the state eventually took back all four networks amid litigation that lasted more than a decade.

Odisha’s lesson is one Nigerians will recognise in its DISCOs: if you privatise an asset without fixing the data and building political consensus, you have simply privatised the insolvency or replaced public corruption with private greed.

Next door, Andhra Pradesh chose a different road. Under Chief Minister N. Chandrababu Naidu, the state kept its distribution network in public hands but ran it like a business. It unbundled the sector and set up an independent regulator, yes, but it started with the unglamorous work: competitive recruitment, transparent performance tracking for staff, heavy investment in feeder metering so the utility actually knew where its electricity was going, and, from January 2000, a sustained campaign against power theft backed by laws that made it a criminal offense with real consequences.

Andhra Pradesh proved what the global data later confirmed. What turns a utility around is corporate governance: strict billing and collection, disciplined staff, and hard budget limits. Who owns the shares matters far less than whether anyone is counting the money.

I saw this play out up close while working in India on the design and rollout of its 100 GW solar reverse auction programme. The auctions were a triumph of clean market rules. Transparent, standardised, competitive bidding took the backroom out of procurement, lowered the risk for investors, and pushed solar tariffs to some of the lowest prices the world had ever seen. But they also exposed a truth Nigeria is now living with. You can buy generation at record-low prices, but if the company at the other end of the wire cannot pay its bills, the whole chain is living on borrowed time.

Nigeria’s privatisation and the single-buyer trap
Nigeria followed the textbook almost line by line. When the Goodluck Jonathan administration completed the landmark 2013 privatisation, with Professor Bart Nnaji at the Presidential Task Force on Power and the Bureau of Public Enterprises (BPE) driving the process, the ambition was bold: dismantle the Power Holding Company of Nigeria (PHCN), carve it into six generation companies (GenCos) and eleven distribution companies (DisCos), and hand them to private investors.

Then Nigeria walked into the single-buyer trap that had caught dozens of countries before it. Everyone knew the new DisCos had neither the balance sheets nor the credit history to sign long-term contracts, so the Federal Government created the Nigerian Bulk Electricity Trading Plc (NBET) as a stopgap. NBET would stand between the generators and the distributors, signing long-term take-or-pay power purchase agreements (PPAs) with the GenCos, backed by sovereign guarantees, and reselling that power to the DisCos through vesting contracts. It was meant to be temporary.

It became the permanent middleman. With NBET in the way, there was no direct commercial relationship between the people who produced power and the people who sold it to households. DisCos collected only a fraction of what they billed, retail tariffs were kept below cost for political reasons, and NBET was left to fill the gap.

For years DisCos remitted only 30 to 50 per cent of their monthly invoices, and NBET had to turn to the Federal Treasury and the Central Bank of Nigeria for multi-trillion naira interventions, beginning with the N701 billion Payment Assurance Facility in 2017 and a N600 billion successor, just to stop gas suppliers and GenCos from turning off the taps. Nigeria had unbundled the sector on paper, but in practice it had piled the entire financial risk of the power system onto the sovereign balance sheet. The result is a circular-debt crisis that looks uncomfortably like Pakistan’s.

The current pivot: Bilateral contracts and unbundling NBET
Under the Electricity Act of 2023, and with Minister of Power, Joseph Tegbe, and the Nigerian Electricity Regulatory Commission (NERC) pushing hard, Nigeria is now correcting course. The strategy is to end NBET’s monopoly as the buyer of last resort and move to a contract-driven bilateral trading market where generators and buyers deal with each other directly.

Under this shift, solvent DisCos and eligible customers can contract straight with GenCos. NERC has also taken the politically painful step of the Band A tariff realignment of April 2024, which cut general subsidies sharply by moving customers on premium feeders, those ostensibly receiving at least 20 hours of supply a day, to about cost-reflective prices. It was the first time in a generation that a large group of Nigerians was asked to pay something close to what their electricity costs, and the argument it started has not yet ended.

The Federal Government is also working through the legacy debt overhang through securitisation, while states such as Lagos, Edo and Kaduna set up their own electricity markets under the constitutional amendment. At the same time, the Rural Electrification Agency (REA) is scaling up productive-use renewable mini-grids, taking solar power directly to farming clusters, rice mills, cold rooms and market centres, and bypassing the ailing national grid altogether.
Avoiding new pitfalls: Grid defection and the lessons of susquehanna

Bilateral contracts and decentralised power are the right direction. But there are two traps on this road, and Nigeria must not fall into either if it wants a stable, solvent wholesale market. To be continued

Dr Oluwatola is an energy economist and infrastructure developer. He is a partner at AP3 Advisory and CEO at TAO
Technologies. He writes from Abuja, Nigeria.