By SUNDAY ABBA, Abuja
The Power Generation Companies (GenCos) have said that over N4 trillion owed for.energy generated and put on the Nigerian national grid is currently threatening the continued operation of their power generation plants.
In a statement signed by Col Sani Bello Rtd, the Chairman Board of Trustees (BOT) Power Generation Companies, the companies said “We are constrained to issue this press release to draw the attention of the federal government and key stakeholders to the need to urgently address the issue of inadequate payment for electricity generated by them and consumed on the national grid, which is currently threatening the continued operation of their power generation plants.”
According to them, it is clear from all indications that GenCos have continued to bear the brunt of the liquidity crisis in the Nigerian Electric Supply Industry (NESI), adding that in spite of that they strived to improve on generation over time.
“GenCos on their part as responsible investors with patriotic zeal have made large-scale investments and have continued to demonstrate absolute commitment by ramping capacities in line with their contract these over (10) years, amid system constraints, policies & regulations that are not investor friendly, increasing debts owed by the FG without a clear financing plan, lack
of firm contracts and a market without securitisation but based on best endeavours, thereby hampering future planning.
“Notwithstanding this and other severe difficulties the GenCos have battled with since takeover in 2013, they have kept to the terms of their contractual agreements by ramping up capacity which has been largely constrained systemically.4.
“Against the backdrop of the many challenges facing the power sector in Nigeria, the crises from cash liquidity are on the top burner and has reduced GenCos ability to continue to perform their obligations, thereby threatening to completely undermine the Electricity value chain.
“The GenCos expectations of being settled through external support such as the World Bank PSRO has also been dampened due to other market participants’ inability to meet their respective distribution linked indicators (DLIs), enshrined in the Power Sector Recovery Programme(PSRP),” the statement read in part.
It also cited access to forex is another problem given that major operation and maintenance needs in the generation subsector are dollarised, the importance of a specialised window or stable dollar allocation option for the GenCos cannot be overemphasised.
According to the GenCos, there is need for a coordinated approach by all stakeholders in the NESI to address the liquidity issue realistically and sustainably in the power sector so that Nigerians can have access to reliable electricity supply.
“In the light of the severity of the issues highlighted above, the GenCos are requesting that immediate and expedited action is taken to prevent national security challenges that may result from the failure of the GenCos to sustain steady generation of electricity of Nigerians,” said the GenCos.
They also lamented that 2024 collection rate has dropped below 30%, and 2025 is not any better severely affecting GenCos’ ability to meet financial obligations, even as high corporate income tax, concession fees, royalty charges, and new FRC compliance obligations are further straining GenCos’ revenue.
Reading further, the statement said, “GenCos are currently owed about ₦4 trillion (₦2 trillion for 2024 and ₦1.9 trillion in legacy debts). No possible solutions, including cash payments, financial instruments, and debt swaps is in sight.
“The 2025 government budget allocates only ₦900 billion, raising concerns about its adequacy to cover arrears and future payments.
“The power generated by
GenCos have continued to be consumed in full without corresponding full payment, notwithstanding the commencement of the partial activation of contracts in the NESI which took
effect from July 1, 2022, the minimum remittance order, bilateral market declaration, waterfall arrangement, the risks of inflation, forex volatility with no dedicated window to cushion the effect of the forex impact, the supplementary MYTO order which leaves about 90% of GenCos monthly invoices unmet without a bankable securitisation, or financing plan.
“This situation has dire consequences for the GenCos and by extension the entire power value chain.”
Lamenting further, the GenCos said liquidity challenges is further worsened by the various policies introduced such as the payment waterfall in the NESI, which deprioritises payment to GenCos as service providers such as MO/NISO, NERC and NBET /leaders all receive 100% payment of their market invoices starting from May 2019, as a result of this, no one is under pressure to ensure GenCos invoices are fully settled.
“The implication of this, is that GenCos only get paid a portion of their invoices
(9%, 11%) from whatever amount is left.
“This is an aberration as it is a clear departure from existing terms of the Power Purchase Agreement (PPA) guiding the contractual relationship between GenCos and the Nigeria Bulk Electricity Trading Plc (NBET), by which NBET as buyer has contracted to purchase the available capacity as agreed under the PPA.
The GenCos demanded among other things that they be accorded the utmost priority when it comes to payment to enable them to have the capacity to continue to produce the electricity which is the product around which the entire power value chain is built, as well as immediate implementation of payment plans to settle all outstanding GenCos invoices.
They also advocated firm monitoring and implementation of the liberalisation of the market (bilateral arrangement) to create market confidence and ensure the viability and credit worthiness of the power sector among others.