Nigeria’s power producers face bigger payment shortfall

Electricity generation companies (GenCos) in Nigeria are facing a bigger income shortfall as payments for the power generated and fed into the national grid have taken a tumble this year.

The total payment received by the GenCos from the Nigeria Bulk Electricity Trading Plc (NBET) in the first half of this year was 54.64 percent of the amount due to them, compared to the 95.02 percent they got in the same period last year, NBET data show.

The government-owned NBET buys electricity in bulk from GenCos through power purchase agreements and sells it through vesting contracts to the distribution companies, which then supply it to the consumers.

The GenCos were paid N212.3 billion out of the total invoice amount of N388.55 billion for H1 2022. In the same period last year, the power producers got N394.86 billion out of the N415.54 billion due to them, according to NBET.

“Raising debt financing has been nearly impossible for generation companies due to the intermittency of cash flows from NBET,” Joy Ogaji, executive secretary of the Association of Power Generation Companies, the umbrella body for the GenCos, told BusinessDay.

Lenders are sceptical that the GenCos may not be able to service debt extended to them for capacity recovery, expansion, and repayment of acquisition debt, according to her.

“This is further complicated by the fact that NBET mostly only pays for capacity utilised (i.e., the generators are left to bear the risk of non-dispatch by the transmission company, load rejection saga between the transmission and the distribution companies, intermittency of gas supply, etc. all outside their control),” Ogaji said.

She said the power producers have been at the receiving end of the lapses and deficiencies in the nation’s power sector.

“The lack of sanctity of contracts has resulted in a huge debt burden on the generation companies (GenCos) who are never fully paid for power generated and supplied to the market,” she said. “The GenCos are almost insolvent and not able to maintain their plants so they can deliver power, and they cannot pay gas suppliers and transporters for gas.”

The NBET data also show that the N212.3 billion paid to the GenCos in H1 2022 was the exact amount received from the DisCos out of the total invoice amount of N388.03 billion for the period.

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The National Bureau of Statistics said last week that the revenue collected by the DisCos from their customers rose to N393.15 billion in H1 2022 from N368.98 billion in the same period last year.

Last month, the Association of National Electricity Distributors, the umbrella body for the Discos, stressed the need to address the lack of a cost-reflective and sustainable tariff, inadequate gas supply, inconsistent regulatory and policy determinations, transmission grid constraint, non-payment of MDA electricity debt, electricity theft, and lack of respect for sanctity of contract in the sector.

The Nigerian Electricity Regulatory Commission (NERC) said in its latest quarterly report that low remittances had continued to adversely affect the ability of NBET to honour its financial obligations to GenCos while service providers struggle with the paucity of funds.

According to the regulator, there is an urgent need for all the DisCos to implement new strategies to increase their collections in order to improve their remittance performance.

“If this is not done, they will be saddled with too much market shortfall debts which will compromise their equity position,” NERC said. “To enforce market discipline and compliance with payment obligations, the commission has ordered NBET to exercise her contractual right on the payment security cover provided by DisCos in accordance with the terms of its vesting contract with DisCos.”

The Federal Government launched the Power Sector Recovery Programme in March 2017, with the major highlight being a Central Bank of Nigeria-funded N701 billion payment assurance guarantee for two years – from January 2017 to December 2018.

The fund, which was expected to cover the shortfalls of the NBET, was targeted at GenCos and gas suppliers for power generated and future power generation.

In August 2019, a N600 billion payment assurance facility extension was approved by the Federal Government to bridge the shortfall in the payment to the GenCos.