Electricity generation companies (GENCos) on Sunday cried out over the constraints of the over N2trillion outstanding debt and another N1.7trillion funding shortfall on its continued operations.
In a statement by the Board Chairman, Sani Bello, the companies 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 fed to the national grid, as this was posing a threat to their continued operation of the power generation plants.
The GENCos said they have continued to bear the brunt of the liquidity crisis in the Nigerian Electric Supply Industry (NESI), which has negatively impacted their capacity to deliver their obligations and undermining the entire electricity value chain.
Despite these challenges, the GENCos said they have struggled to meet the terms of their contractual agreements by ramping up capacity since taking over the electricity infrastructure from the defunct Power Holding Company of Nigeria (PHCN) in 2013.
Apart from large-scale investments, Bello said the GENCos have continued to demonstrate absolute commitment to their operations for over ten years, amid system constraints, inconsistencies in policies and regulation, unfriendly investors, increasing government debts without a defined clear financing plan, lack of firm contracts and an electricity market devoid of guarantees.
These constraints, the companies pointed out, have seriously hampered future planning and expansion of their capacity for growth.
“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, foreign exchange volatility with no dedicated window to cushion the effect of the impact, the supplementary multi-year tariff order (MYTO), 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, as the 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 over1.7trillion Naira, funding gap created in the recent supplementary MYTO order 2024 without a designated fund to fill the gap,” Bello said.
This huge debt outlay, he noted, was now greatly inhibiting GENCos ability to meet their obligations to lenders, O&M operations, necessary maintenance, spare parts procurements, and employee-related obligations and others.
He said the GENCos expectations of settlement through external support, such as the World Bank PSRO, has been dampened due to other market participants’ inability to meet their respective distribution linked indicators (DLIs), enshrined in the Power Sector Recovery Programme (PSRP).
Beyond these challenges, the Board Chairman said access to foreign exchange has remained a major constraint to operations and maintenance needs in the electricity generation subsector, as every aspect require dollars to procure.
To ensure effectiveness, the GENCos said it would require a specialised window or stable dollar allocation option for them, adding that there was the need for a coordinated approach by all stakeholders in the NESI to address the liquidity issue realistically and sustainably for Nigerians to have access to reliable electricity supply.
Urging the government to take steps to address the issues raised, by expedite action to prevent national security challenges that may result from the failure of the GENCos to sustain steady generation of electricity of Nigerians.
Bello said the GENCos liquidity challenges have further worsened by the various policies introduced by the government in the power sector, such as the payment waterfall in the NESI, which deprioritizes payment to GENCos, adding that the implication was that they only get paid a portion of their invoices (9%,11%) from whatever amount was 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.
“GENCos should 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”, he said.
The GENCos submitted a nine points demand to the Government to guarantee the continued generation of electricity in the country.
They include the 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 back-stop the exposures in the NERC’s Supplementary Order to the MYTO and the DRO 2024 and provision of payment security (guarantees) backed by World Bank/AFDB, to guarantee full payment to GENCos, to enable them to meet their critical needs, improve generation to Nigeria and implement their respect growth and expansion plans.
Other demands include ensuring greater transparency in the billing, collection, and remittance processes of sector funds; investors focused and economy growth-friendly policies and regulations to incentive investors; liberalisation of the market (bilateral arrangement) to create market confidence and ensure the viability and credit worthiness of the power sector, and ensuring full effectiveness of all market agreements, firm monitoring, and enforcement of the rules by the regulator on all market participants.