Electricity generation in the country is facing fresh threat as Generating Companies (GenCos) have foreseen a gradual shut down of thermal plants that are powered by gas. The Gencos raised the alarm as a result of their inability to sustain operations in the light of the over N600 billion debt owed them by the Nigerian Electricity Bulk Trading Company (NBET), an agency of the Federal Ministry of Power.
The GenCos lamented that they are now cash strapped and unable to pay gas suppliers who are now diverting supplies for other uses like Liquefied Petroleum Gas (LPG) or cooking gas whose demand is currently growing.
The executive secretary, Association of Power Generation Companies (APGC), Joy Ogaji told LEADERSHIP in an interview that the outstanding debt owed the generation companies is close to N600 billion. “In 2013 when new investors took over the unbundled assets in the power sector, the generation companies entered into a Power Purchase Agreement (PPA) with the NBET, which specified that the agency will buy power and pay 100 per cent of power purchased.
The agreement covers energy purchased as well as capacity. “But since then, the capacity calculation has not been settled and it is building up monthly, we are yet to reconcile this with the government who is merely paying 20 per cent out of 100 per cent of power purchased. Between 2013 up to December 2016, outstanding debt which NBET should pay the Distribution Companies (Discos) is N600 billion, and for reason yet to be made known, government is silent on it”, she lamented.
NBET was incorporated on July 29, 2010 with a mandate to engage in the purchase and resale of electric power and ancillary services from independent power producers and from the successor generation companies. NBET discharges its duties by entering into PPA with generation companies and resells power to distribution companies through the vesting contracts.
The PPA defines all of the commercial terms for the sale of electricity between the two parties, with details on commercial operation, schedule for delivery of electricity, penalties for under delivery as well as payment terms. However, Ogaji deeply expressed frustration of the Gencos that the Nigerian electricity market had faced liquidity crisis since it was handed over to private owners. She said the liquidity in the electricity market as at the time of privatisation was about 65 percent but had progressively declined to less than 20 percent.
‘‘The GenCos are currently receiving less than 20 percent of their invoices paid by NBET. The role of NBET is to give incentives to investors who have liquidity issues in the market and now the liquidity issue is on the increase which was caused by the inability of NBET to meet its contractual agreement,’’ she added. She said,
“The GenCos should not be made to suffer for liquidity issues that was not their creation. The worsening market liquidity has culminated to a state of bankruptcy for the Gencos as they lack funds to carry out their operations and pay their workers. Some GenCos have not been able to pay salaries for upwards of three months, as I speak with you, some could not pay November and December 2017 salaries.’’
Ogaji also identified issues challenging the operation of the GenCos to include poor payment of their invoices by NBET, non-evacuation of stranded power occasioned by load rejection by the Discos or congestion in the grid network, lack of implementation of the PPA with NBET, domiciliation of cost of gas in dollars and the associated take or pay obligations. LEADERSHIP learnt that going forward, the GenCos had unanimously resolved to use all available dispute resolution channels, including litigation, to compel NBET to comply with the terms of agreement and also take advantage of the provisions of the Electric Power Sector Reform Act (EPSRA) 2005 to further pursue its case.
Ogaji expressed disappointment that government only released the payment of about N152 billion to offset seven months debt out of 12 months. “We are harassed by lenders who send us warning letters to pay money borrowed to run the business, but as patriotic corporate entities we still manage to cope with the situation but one thing is certain, if out of patriotism we decide not to shut down sooner than Nigerians expect, the system will shut down by itself,” she said. Ogaji wondered why the N701 billion approved by the Federal Executive Council (FEC) as payment assurance guarantee for the power sector is not channeled to payment of the debt to keep the system running.
The minister for Power, Works and Housing, Mr. Babatunde Raji Fashola, speaking on the fund said the liquidity problems that have characterised the market have affected the Nigeria Bulk Electricity Trading (NBET)’s ability to deliver on its PPA obligations to the GenCos.
Fashola said in order to strengthen the NBET, the Central Bank of Nigeria (CBN) is providing the payment assurance guarantee for energy produced by any GenCo so that GenCos can pay their gas suppliers. The N701 billion Payment Assurance Guarantee (PAG), is the latest intervention by the CBN in the Nigerian power sector. Other interventions by the CBN include the N300 billion Power and Aviation Intervention Facility (PAIF) and the N213 billion, Nigeria Electricity Market Stabilisation Facility (NEMSF).
The Payment Assurance Guarantee is for a two-year period, beginning in January 2017 and will guarantee NBET’s payment obligations to GenCos until December 2018. LEADERSHIP learnt that the PAG would not focus on addressing the existing liabilities to GenCos and gas producers prior to January 2017 but will only apply to GenCos who generate power to the grid (including Hydro-power GenCos) and their gas suppliers. But Ogaji faulted the entire arrangement saying that all liabilities ought to be addressed to enable operators sustain their businesses and ensure steady power generation in the country.