GenCos Say N3.7trn Debt Threatening Power Generation

Date:

By ABAH ADAH, Abuja

Power Generation Companies, GenCos, have stated that the accumulated huge debt of over N3.7 trillion owed them is taking a huge toll on their operations and may soon force them to begin to close shop if the Federal Government fails to address the liquidity challenge facing the upstream segment of the industry urgently and sustainably.

In a statement issued recently, signed by the board chairman, Col Sani Bello ,Retd, the GenCos said they were “constrained 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”. 

Regretting that they have continued to bear the brunt of the liquidity crisis in the Nigerian Electric Supply Industry, NESI. The GenCos said aside other pressing challenges, the liquidity crisis had reduced their ability to continue to perform their obligations, thereby threatening to completely undermine the electricity value chain.

The GenCos lamented that over time, since the privatisation 10 years ago when they took over, their products 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, the supplementary MYTO  which leaves about 90% of GenCos monthly invoices unmet without a bankable securitisation, or financing plan. 

“GenCos are currently owed over two trillion Naira for power they generated, put unto the national grid, and consumed by end users. This is in addition to the over N1.7trillion funding gap created in the recent supplementary MYTO 2024 without a designated fund to fill the gap. 

“This huge debt outlay is now greatly inhibiting GenCos ability to meet their obligations to lenders, O&M operations,  necessary maintenance, spare parts procurements, and employee-related  obligations etc., the statement read in part.

The GenCos also lamented that their 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.

They equally noted that access to forex is another problem given that major operations and maintenance need in the generation subsector are dollarized, stressing that the importance of a specialised window or stable dollar allocation option for the GenCos cannot be overemphasised.

They said that 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”.

The GenCos said the liquidity challenges of the subsector is further worsened by the various policies introduced such as the payment waterfall in the NESI, which, according to them, deprioritises payment to GenCos. 

“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 DisCos said.

 They therefore proffered several solutions to nip in the bud the impending operational shutdown which include: Immediate implementation of payment plans to settle all outstanding GenCos invoices, in line with their PPAs. Reprioritization of payments under the waterfall arrangement to give full 

priority to a 100% payment of GenCos’ invoices as at when due. A clear financing plan to backstop the exposures in the NERC’s Supplementary  Order to the MYTO and the DRO 2024.

They also recommended provision of payment security, guarantees, backed by World Bank/AfDB to guarantee full payment to GenCos, to enable them meet their critical needs, improve generation to Nigeria and implement respect growth and expansion plans. Ensuring greater transparency in the billing, collection, and remittance process of sector funds among others.

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