By Stella Odueme
The Power Generation Companies (GenCos) have threatened to shutdown their operations over unpaid invoices to the tune of N4trn, urging the Federal Government and key stakeholders to urgently address the issue to prevent blackout in the country.
The GenCos in a press release signed by its Chairman, Board of Trustees, Col. Sani Bello Rtd, on Monday hinted that the cash liquidity of over N4 trillion is currently threatening the continued operation of their power generation plants.
While stressing negative impact of the huge debts being owed huge, he disclosed that GenCos are operating under very harsh monetary and fiscal conditions, occasioned by
the economic realities in the country.
The statement enumerated various challenges hindering smooth operations, demanding immediate action by the federal government and other stakeholders to do the needful for seamless power generation operation for Nigerians.
The statement reads in parts ;“It is no more news that the power generation companies (GenCos) have continued to bear the brunt of the liquidity crisis in the Nigerian Electric Supply Industry (NESI). 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 and regulations that are not investors friendly, increasing debts owed by the FGN 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. 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 suchW 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 Program (PSRP). Access to forex is another problem given that major operation and maintenance needs in the generation subsector are dollarized, the importance of a specialised window or stable dollar allocation option for the GenCos cannot be overemphasised.
“GenCos are of the position 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. In the light of the severity of the issues highlighted above, the GenCos are requesting that
mmediate 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.”
The statement also decried declining payment rates, noting that the 2024 collection rate has dropped below 30%, while 2025 is not any better, thus severely affecting GenCos ability to meet financial obligations. The statement equally stressed on tax and regulatory challenges such as high corporate income tax, concession fees, royalty charges, and new FRC compliance obligations that are further straining GenCos’ revenue.
“Outstanding Payments: 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.
“Budget Allocation Concerns: 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.
“GenCos liquidity challenges is furtherw worsened by the various policies introduced such as the payment waterfall in the NESI, which deprioritizes 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 tow 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,” they said.
To prevent blackout across the nation, GenCos have therefore demanded immediate implementation of payment plans to settle all outstanding GenCos invoices; reprioritization of payments under the waterfall arrangement to give full priority to a hundred percent 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; 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.
They are also demanding an investors focused and economy growth friendly policies and regulations to attract investors, firm monitoring and implementation and liberalisation of the market (bilateral arrangement) to create market confidence and ensure the viability and credit worthiness of the power sector.
Other demands are ensuring full effectiveness of all market agreements, firm monitoring, and enforcement of the
rules by the regulator on all market participants; as well as ensuring greater transparency in the billing, collection, and remittance process of sector funds.
