In the fictional world of television cartoon character Superman, kryptonite is an alien mineral that has the property of depriving Superman of his powers. In Nigeria’s floundering power sector, force majeure has emerged operators’ kryptonite to keep the Federal Government in line.
The term force majeure is used in contracts to absolve parties of their obligations based on unforeseeable, external and unavoidable situations. Power sector players use it as leverage to compel the Federal Government to part with bailout funds or stop reforms.
Much like the Nigerian Labour Congress wields strikes as an advantage in negotiations with the Federal Government, electricity generation companies (GenCos) and electricity distribution companies (DisCos) through their trade association have weaponised force majeure to extract concessions from a Federal Government shoddy with reforms and too compromised to make bold decisions.
Last month, the Federal Executive Council, Nigeria’s highest decision-making organ, approved N600bn intervention funding which, according to BusinessDay checks, puts power sector bailouts at $10.33 billion since 2014. The Central Bank of Nigeria (CBN), however, kicked against it, saying operators are yet to show results for previous bailouts.
Bowing to pressure, the CBN acquiesced but the Nigerian Bulk Electricity Trader (NBET), the body that buys power from GenCos and sells to DisCos, introduced a 0.74 percent administrative charge for gas supply transactions. This was supposed to be a precondition for the GenCos to draw from the N600 billion bailout.
In response, the GenCos through Joy Ogaji, executive secretary of the Association of Power Generation Companies (APGC), called a press conference and threatened force majeure, citing poor remittances on energy invoices by DisCos and the new administrative charge.
“The time may just be right for GenCos to declare force majeure and release themselves of all market obligations. Surely, GenCos will remain blameless for taking such actions,” Ogaji told journalists.
BusinessDay checks show that soon after this threat, the Presidency began engagement with the GenCos.
In November 2017, shortly after Babatunde Fashola, the then minister of power, works and housing, announced the eligible customer scheme, which allows GenCos to sell power directly to customers, the DisCos issued a force majeure.
The DisCos through the Association of Nigerian Electricity Distribution Companies (ANED), a trade and advocacy group, have threatened force majeure for various reasons. These reasons have ranged from the actions of their regulator to the inability of the Federal Government to raise tariffs, and even perceived encroachment on their franchise areas by off-grid operators.
Nigeria’s 27 thermal plants control at least 78 percent of power generation while the hydro plants – Kainji, Jebba and Shiroro – supply at least 21 percent of generation. This structure gives the GenCos leverage to secure concessions from the Federal Government as downing tools could leave over 70 percent of Nigerians without power supply.
DisCos control power distribution infrastructure and shutting down power could leave the nation in crisis.
“The threat of force majeure is being used to force the CBN and the government to play ball,” said an executive in one of the power companies. “It is still the most potent tool.”
But force majeure, a French term which literally means “greater force”, is related to the concept of an act of God, an event of which no party can be held accountable, such as a hurricane or a tornado. Force majeure also encompasses human actions, however, such as armed conflict.
In the US and the UK, force majeure clauses are acceptable but must be more explicit about the events that would trigger the clause. Oftentimes, they are usually unusual occurrence capable of derailing the contract.
Eyo Ekpo, a former director at NERC, when asked about operators’ penchant for threatening to issue force majeure, said the place to check is “their contracts” as operators base their actions on these.
According to the contracts governing transactions in the power sector, NBET buys electricity from GenCos through Power Purchase Agreements (PPAs) and sells to the DisCos through Vesting Contracts.
However, force majeure is so loosely interpreted in these contracts that it admits almost anything from thunderstorms to a colourful remark by the regulator.
Ayodele Oni, energy lawyer, had argued that whereas Clause 7.1 of the Performance Agreement defines the term ‘force majeure’ to cover any event beyond the reasonable control of a party thereto, Clauses 7.3 and 7.4, in particular, limit the events that may qualify as force majeure.
Since GenCos and DisCos associations like ANED and AEGC are not a party to vesting and purchase agreements, Oni argued that “unless a specific contract or legislation allows a specified third party to benefit therefrom, only parties to a contract can benefit under the same”.
“Thus, generally, a stranger to the contract cannot, therefore, invoke any of the covenants contained in it,” Oni said.
These associations have variously threatened force majeure and the government has acquiesced to their demands because the regulator has been unable to enforce needed reforms, such as ensuring tariffs are fair and enforcing market discipline.
ISAAC ANYAOGU
