Powe crisis: GenCos cry out, say N3.7trn debt dangerous to our operations

By Chris Ochayi

The cash liquidity crisis in the power sector, on Sunday, took an alarming dimensions as the Generation Companies, GenCos, warned of imminent collapse of electricity generation in the country should the N3.7trn debt owed to them are not settled.

GenCos gave the breakdown of the debt to include the N2 trillion for power generated, put unto the national grid, consumed and N1.7trillion funding gap created in the recent supplementary MYTO order 2024.

The Generation Companies, in a statement signed by its Board Chairman, Col. Sani Bello (Rtd.) lamented that the GenCos were left to bear the brunt of the liquidity crises in the electricity sector.

According to him, the current Multi-Year Tariff Order ((MYTO) by NERC has further worsened their situation with payment of 9 to 11 percent of services it rendered is paid for by its customers.

He said, “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 over 1.7trillion 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.”

Bello pointed out that 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.

“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”, he said.

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 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.”

It said the new order is an aberration and 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).”

The companies demanded that for them to continue operations, the government needs to ensure a payment plan to settle all outstanding GenCos invoices, in line with their PPAs.

“Reprioitization 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.”

According to Bello, “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 window or stable dollar allocation option for the GenCos cannot be
overemphasised.”