LAGOS (Reuters) -- Nigeria has raised 75 billion naira ($584 million) in long tenor bonds from a consortium of five banks to offset a backlog of pension arrears, Finance Minister Nenadi Usman said on Monday.

The payment of arrears is part of a reform of public pensions, which were transferred to the private sector after the public system collapsed in 2004.

"The government has gone into partnership with a number of banks ... for the settlement of the pension arrears owed our senior citizens," Usman said at a public presentation of cheques to selected pensioners in Lagos.

The arrears owed to 260,000 public sector pensioners will now be paid by the consortium of banks, comprising First Bank (FBNP.LG, Zenith Bank, Fidelity Bank, UBA Plc and Guaranty Trust Bank.

"They will assume immediate liabilities for the pension arrears on behalf of the government while they will be repaid through the offer and purchase of long tenor bonds," said Bode Agusto, head of the budget office.

The government plans to make a provision for the outstanding balance of arrears, estimated at 25 billion naira, in next year's budget, he added.

Nigeria, Africa's most populous country and top oil producer, had built up a backlog of unpaid pension arrears due to what officials attributed to fraudulent administration by past governments.

A new pension scheme managed by the private sector was launched in 2004 to replace the old one which collapsed with liabilities of 2 trillion naira ($15.6 billion).

Public sector workers have been contributing to the new system since 2004, and 35 billion naira in savings is being transferred to the 16 approved pension fund operators. Usman said the payment of part of the arrears "is an attestation of the fact that our reform packages have started to manifest the expected human face."

Reforms initiated by her predecessor as finance minister, Ngozi Okonjo-Iweala, have come under criticism in some quarters for failing to improve living standards for ordinary Nigerians.

Okonjo-Iweala's sudden removal by Obasanjo in June has raised questions about his commitment to free-market reform and fiscal discipline for which she became famous.

The oil exporting nation last month paid over 5 billion naira in outstanding government debts to local contractors.