THE power Generation Companies (GenCos) have expressed worries over the N3.7 trillion debt owed to the companies, warning that it could threaten their operations and lead to the collapse of electricity generation in Nigeria if not resolved.
GenCos gave the warning in a statement signed by its Board Chairman, Sani Bello on Sunday, June 2, urging the government to ensure a payment plan to settle all outstanding invoices to the companies.
Gencos said they were left to bear the brunt of the liquidity crises in the electricity sector.
The companies are worried about the current Multi-Year Tariff Order ((MYTO) by NERC that further worsened GenCos’ situation as payment of nine to 11 per cent of services it rendered was paid for by its customers.
“GenCos is currently owed over two trillion Naira for the power they generated, put unto the national grid, and consumed by end users. This is in addition to the over 1.7 trillion naira, 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, O&M operations, necessary maintenance, spare parts procurements, and employee-related obligations etc,” GenCos stated.
The GenCos’ revelation came roughly two weeks after the Minister of Power, Adebayo Adelabu, said Nigerian President Bola Tinubu had approved a payment plan to clear outstanding debts owed by the power sector, estimated at N3.3 trillion.
On Thursday, May 16 at the 8th Africa Energy Marketplace in Abuja, Adelabu said specifically that the government would liquidate the N1.3 trillion owed to GenCos and $1.3 billion debt to gas companies.
The minister even disclosed that the federal government had commenced payment of the cash part of the N1.3 trillion debt owed GenCos and had concluded plans to settle the second part via promissory notes within two to five years.
As of the time of filing this report, the Minister of Power is yet to give an update of the N1.3 trillion promised the GENCOs to defray their debts.
In the statement by its board chairman, GenCos said cash liquidity crises were on the top burner, reducing their ability to perform obligations and undermining the electricity value chain.
“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 largely suffered systemic constraints.
“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,” the GenCos stated.
It pointed out that the new order was an aberration and clear departure from existing power purchase agreement (PPA) terms guiding the contractual relationship between GenCos and the Nigeria Bulk Electricity Trading Plc (NBET).
“It, therefore, said to continue operations, the government needs to ensure a payment plan to settle all outstanding GenCos invoices, in line with their PPAs. Reprioritization of payments under the waterfall arrangement to give full priority to a hundred per cent 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.”