Bulk Trader Empowers GenCos to Access DisCos’ Letters of Credit

Nigerian-Bulk-Electricity-Trading-Plc-NBET

The Nigerian Bulk Electricity Trading Plc (NBET), better known as the Bulk Trader, has assigned to the electricity generation companies (Gencos), the right to drawdown payments for power supplied but not paid for by electricity distribution companies (Discos) from the Letter of Credits they lodged as payment guarantees with their banks.

NBET said it had payment guarantees from bankers of eight Discos, and had devised a new structure which vested on the Gencos, the rights to directly demand for payment from the bankers when Discos defaulted in their remittances to it for them.

The Bulk Trader explained that the strategy was informed by the poor revenue remittance performances of the Discos, as well as their reported disregard for market rules governing the country’s electricity market.

Recently, the Discos’ remittances have largely fallen to an average of 40 per cent, due largely to drop in power supply and low revenue collections.

This situation has however impacted heavily on the operations of the Gencos who also raised the alarm that debts owed them on power supplied was gradually choking them out of operation.
Six of the nation’s privatised Gencos in a recent statement signalled their intention to shut down operations on accounts of an outstanding N145.475 billion debt owed to them. The Gencos are Egbin; Trancorp Ugheli; Sapele; Geregu; Kainji/Jebba and Shiroro.

However, NBET’s Acting Managing Director, Mr. Waziri Bintube told THISDAY in an interview that the agency had worked out a new structure to enable the Gencos make direct payment demands from banks where the Discos lodged their letters of credit on its behalf.

The letters of credit serve as payment guarantee for energies generated by the Gencos, bought by NBET and sold to Discos. It is a form of financial security on power sold to Discos.
“When we are buying power, the main source of payment is remittance from the Discos. They also give us letters of credit from their banks, and it is like a guarantee from their bank to say should they fail to pay us, their banks will pay us.

“Out of the 11 Discos, about eight have given us that guarantee and it is just that we have not called on them because we are very sensitive to the impact it might have on the banking industry but we have formed a structure and assigned our rights on those guarantees to the Gencos who can now call their banks and make them pay if the Discos fail,” said Bintube.

He confirmed the Gencos were largely affected by the poor remittances from the Discos, and that assigning rights over the Discos’ payment guarantee to them was part of efforts to keep them working.

Bintube further explained: “So, there are three levels of the waterfall, first is the cash collections from the consumers which the Discos are supposed to pay and if they fail, there is the LCs from their banks and then third level is the World Bank partial risk guarantee, though, it is not all the Gencos that have it, but what it does for the Gencos that have it is that if NBET and the Discos fail to pay them, then the World Bank through that structure pays them and that is why it is called partial risk guarantee and not full but kicks in when the need arise.”

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