• Friday, June 14, 2024
businessday logo

BusinessDay

FG to settle N1.7trn GenCos debt in 25 days

Wale Edun’s economic reforms: A blueprint for alleviating Nigerian suffering

…Plans issuance of bonds, promissory notes

The federal government has announced plans to settle an outstanding debt of N1.7 trillion owed to Generation Companies (GenCos) within the next 25 days.

This move comes after months of pressure from the power generation companies who have threatened to halt operations due to unpaid invoices.

In the Accelerated Stabilisation and Advancement Plan (ASAP) presented by Wale Edun, minister for finance, the government said it will “Develop and commence implementation of a robust and achievable plan for the resolution of the N1.7 trillion sector liquidity issue by end of June 2024”.

Within one to six months, the federal government said it plans to pay off 2023 and 2024 verified federal government obligations to GenCos and GasCos.

Read also: FG mulls fresh N7.24tn borrowing to fund intervention plan

“Key power sector government stakeholders to work with Honourable Minister of Finance and Coordinating Minister of the Economy; Executive Chairman, Federal Inland Revenue Services (FIRS) and Governor, Central Bank of Nigeria (CBN) to execute alternative settlement methods such as bonds and promissory notes for verified legacy debts,” ASAP document said.

Last Sunday, GenCos raised alarm over the imminent collapse of their operations following a huge debt of N2 trillion and an estimated funding gap of N1.7 trillion contained the 2024 Multi-Year Tariff Order.

According to Sani Bello, the board Chairman of the Association of Power Generation Companies, in all the crises facing the sector, cash liquidity is on the top burner and has reduced GenCos ability to continue to perform their obligations, thereby threatening to completely undermine the electricity value chain.

For him, besides being owed huge debts, the GenCos also are operating under very harsh monetary and fiscal conditions, occasioned by the economic realities that face the country today.

“This huge debt outlay is now greatly inhibiting GenCos ability to meet their obligations to lenders, O&M operations, necessary maintenance, spare parts procurements, and employee-related obligations etc.

“The GenCos expectations of being settled through external support such as the World Bank PSRO has also been dampened due to other market participants’ inability to meet their respective distribution linked indicators (DLIs), enshrined in the Power Sector Recovery Program (PSRP).

“Notwithstanding this and other severe difficulties the GenCos have battled with since takeover in 2013, they have kept to the terms of their contractual agreements by ramping up capacity which has largely suffered systemic constraints,” he said.

Adebayo Adelabu, minister of power had last month disclosed that President Bola Tinubu had approved a payment plan for the debt owed to gas suppliers and the GenCos that would involve immediate cash payment and promissory notes.

But the GenCos appear not satisfied with this and demanded that the Federal Government should present a clear payment plan to cleat the debts.

They demanded “immediate implementation of payment plans to settle all outstanding GenCos invoices, in line with their PPAs; Reprioritization of payments under the waterfall arrangement to give full priority to a hundred percent payment of GenCos’ invoices as at when due.

“A clear financing plan to backstop the exposures in the NERC’s Supplementary Order to the MYTO and the DRO 2024. Provision of payment security (guarantees) backed by World Bank/AFDB to guarantee full payment to GenCos, to enable them to meet their critical needs, improve generation to Nigeria and implement their respective growth and expansion plans”.