The debts owed to the two power companies listed on the NGX, Geregu Power Plc and Transcorp Power surged to N420 billion, the highest ever on record in 2024.
Transcorp Power and Geregu Power are facing significant unpaid bills, with Transcorp Power’s customers owing N298.4 billion and Geregu’s owed N121.8 billion, as reported in their 2024 annual financial statements.
In 2023, the two companies had a combined total of N193.3 billion in trade receivables, with Transcorp Power accounting for N145.2 billion of that amount.
The growth in this debt comes amidst a N443 billion revenue recorded by the two companies in 2024. In 2023, both companies posted a N225 billion revenue, with cash sales making up about N154.7 billion, or 69 percent of total sales.
In 2024, cash sales increased to about N193.6 billion, albeit, just 44 percent of total sales.
Although the profit and loss statements show improvement in the financials of these companies, the cash flow statement speaks otherwise. Both companies posted a cumulative gross profit margin of 46 percent in 2024, a decline from the 52 percent cumulative gross profit margin posted in 2023.
Read also: Subsidy boosts Geregu Power’s cash flow by 95%
The companies also recorded a cumulative net profit of N107.4 billion, with Transcorp Power contributing N80 billion and Geregu Power posting N27.4 billion in net profit. In marginal terms, there was a 300 bps appreciation in net profit margin, from 21 percent as of 2023 to 24 percent as of 2024.
Although both companies saw profit growth in 2024, a drop in cash sales compared to revenue has stretched their cash reserves. Looking at their cash ratios— which show how well a company can cover short-term debts with its available cash—reveals a decline in their ability to pay off those liabilities. For Transcorp Power, its cash ratio fell to 0.036 in 2024, down from 0.05 in 2023, a sign of serious liquidity issues for the company.
Geregu Power’s situation is much better. While its cash ratio dropped to 0.26 in 2024, down from 0.99 in 2023, it’s still within a healthy range. This drop also reflects the company’s strong cash reserves, which were put to good use in building a new turbine plant worth N41.3 billion in 2024.
Transcorp Power’s liquidity challenges resulted in an additional N73.6 billion in debt, primarily to gas suppliers. This pushed the company’s trade payables to N172.4 billion, nearly double the N98.8 billion reported in 2023.
Meanwhile, Geregu Power’s debts to suppliers reached N98.1 billion, with approximately N80.9 billion owed to gas suppliers. This marks a 73% increase from the N46.7 billion recorded in 2023.
Read also: Transcorp Power profit rises by 165%
While the partial removal of electricity subsidies in early 2024 resulted in a revenue boost for distribution and generation companies, significant challenges remain within the sector. Distribution companies continue to face severe liquidity issues, preventing them from procuring meters for their customers. These financial struggles are cascading down to the generation companies, as rising debts reduce available cash for power generation, highlighting a broader liquidity crisis across the industry.
Despite growth in revenue and net profits, both cash ratios are declining, and trade payables are on the rise, signaling persistent financial instability in the sector.
For Transcorp Power, the mounting debt to suppliers and a sharply reduced cash ratio signal serious financial strain, while Geregu Power, despite some improvement, faces its own set of challenges.
As both companies navigate these turbulent waters, the ability to manage cash flow and reduce unpaid debts will be pivotal in determining their financial stability in the coming years. The industry must now focus on sustainable strategies to address these growing liabilities.
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