Nigeria’s Power Generation Companies (GenCos) has threatened shutdown of operations due Federal Government’s failure to settle over N4 trillion invoices.
This was contained in a press statement the GenCos Board of Trustees (BoT), Chairman, Col Sani Bello (rtd) issued in Abuja.
The statement said the GenCos are constrained to issue the press release 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”.
According to the statement, it is no more news that the GenCos have continued to bear the brunt of the liquidity crisis in the Nigerian Electric Supply Industry (NESI).
Bello said in the light of the severity of the issues, 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 of Nigerians.
He said there have declining payment rates, stressing the 2024 collection rate has dropped below 30 per cent, and 2025 is not any better severely affecting GenCos’ ability to meet financial obligations.
The statement noted that there have been high corporate income tax, concession fees, royalty charges, and new FRC compliance obligations 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,” Bello added.
According to him, the 2025 government budget allocates only ₦900 billion, raising concerns about its adequacy to cover arrears and future payments.
He said 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 90per cent of GenCos monthly invoices unmet without a bankable securitisation, or financing plan.
He said this situation has dire consequences for the GenCos and by extension the entire power value chain.
Bello explained that 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 10 years, amid system constraints, policies and regulations that are not investors friendly, increasing debts owed by the Federal Government without a clear financing plan, lack of firm contracts and a market without securitisation but based on best endeavours, thereby hampering future planning.
The statement further said 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.
Bello said: “GenCos liquidity challenges is further 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 100per cent 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 (nine per cent, 11per cent) 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.
“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.
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 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 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.
“On the foregoing, we hereby demand the following to urgently put GenCos in a position to continue
generating power for transmission and distribution to Nigerians: Immediate implementation of payment plans to settle all outstanding GenCos invoices; reprioritization of payments under the waterfall arrangement to give full priority to a 100 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,” the statement said.
Others include the 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; ensuring greater transparency in the billing, collection, and remittance process of sector funds; investors focused and economy growth friendly policies and regulations to incentivise investors; firm monitoring and implementation of the Liberalisation of the market (bilateral arrangement) to create market confidence and ensure the viability and credit worthiness of the power sector; ensuring full effectiveness of all market agreements, firm monitoring, and enforcement of the rules by the regulator on all market participants.
“GenCos are of the position that the liquidity challenge threatening the continued operation of their power generation plants must be addressed urgently, and sustainably too. Besides being owed huge debts, the GenCos also are operating under very harsh monetary and fiscal conditions, occasioned by the economic realities that face the country today.
“The flow of money within the power industry is one of the fundamental problem preventing Nigerians from enjoying continued and sustainable improvement in electricity supply. This would enable GenCos meet their critical needs which would, in turn, ensure that they sustainably generate power, so that Nigerians can have better access to reliable electricity supply. GenCos will like to re-emphasise that this request requires urgent attention,” the statement said.
