Power generating firms have announced that the sector’s indebtedness to companies that produce electricity is now N3.7tn and that this is a threat to further electricity production.
Electricity producers under the aegis of the Association of Power Generation Companies drew the attention of the Federal Government and key stakeholders to the need to urgently address the issue of inadequate payment for electricity generated by Gencos and consumed on the national grid, Punch reported.
They said the inadequate payment is currently threatening the continued operation of their power generation plants, according to a statement issued in Abuja on Sunday by the Board Chairman, Power Generation Companies, Col. Sani Bello (rtd).
“Gencos are currently owed over N2tn for the power they had generated, put onto the national grid, and consumed by end users. This is in addition to the over N1.7tn funding gap created in the recent supplementary MYTO order 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, necessary maintenance, spare parts procurements, employee-related commitments, etc.
“The Gencos’ expectations of being settled through external support such as the World Bank Power Sector Recovery Programme have also been dampened due to other market participants’ inability to meet their respective distribution linked indicators enshrined in the PSRP,” the firms stated.
They said access to forex is another problem given that major operation and maintenance needs in the generation subsector are dollarised, as 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 a need for a coordinated approach by all stakeholders in the NESI (Nigeria Electricity Supply Industry) 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 for Nigerians.
“Gencos liquidity challenges are further worsened by the various policies introduced such as the payment waterfall in the NESI, which deprioritises payment to Gencos. The implication of this is that Gencos only get paid a portion of their invoices (nine per cent, 11 per cent) from whatever amount is left,” the statement noted.
This, according to the power firms, is an aberration as it is a clear departure from existing terms of the Power Purchase Agreement guiding the contractual relationship between Gencos and the Nigeria Bulk Electricity Trading Plc, by which NBET as buyer has contracted to purchase the available capacity as agreed under the PPA.
They argued that Gencos should be accorded the utmost priority when it comes to payment to enable them to have the capacity to continue to produce electricity.
“Given the foregoing, we demand the following to urgently put Gencos in a position to continue generating power: a. Immediate implementation of payment plans to settle all outstanding Gencos invoices in line with their PPAs.
“b. Reprioritisation of payments under the waterfall arrangement to give full priority to a 100 per cent payment of Gencos’ invoices as when due. c. A clear financing plan to backstop the exposures in the NERC’s Supplementary Order to the MYTO and the DRO 2024.
“d. 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 stated.
The power generation companies added, “e. Ensuring greater transparency in the billing, collection, and remittance process of sector funds. f. Investors-focused and economy growth-friendly policies and regulations to incentivise investors.
“Liberalisation of the market (bilateral arrangement) to create market confidence and ensure the viability and creditworthiness of the power sector. h. Ensuring full effectiveness of all market agreements, firm monitoring, and enforcement of the rules by the regulator on all market participants.”
The power firms stated that the liquidity challenge threatening the continued operation of their power generation plants must be addressed urgently and sustainably.
“Besides being owed huge debts, the Gencos also are operating under very harsh monetary and fiscal conditions, occasioned by the economic realities that face in the country today.
“The flow of money within the power industry is one of the fundamental problems preventing Nigerians from enjoying continued and sustainable improvement in electricity supply.
“Expeditiously solving these issues would enable Gencos to meet their critical needs which would, in turn, ensure that they sustainably generate power to enable Nigerians to have better access to reliable electricity supply. Gencos would like to re-emphasise that this request requires urgent attention,” they stated.
They stressed that the power generated by Gencos had been 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, and waterfall arrangement.
This, they said, was coupled with 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 per cent 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,” the firms stated.
Recall that the Minister of Power, Adebayo Adelabu, recently stated that the indebtedness to power producers was about N3tn, as he promised that the Federal Government was making efforts to tackle this debt.
Adelabu also pointed out that the indebtedness to gas producers who supply gas for power generation was huge and that all these debts were weighing the power sector down, though efforts were on to address the situation.
Leave a Reply