• Thursday, June 20, 2024
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Government’s debt, poor policies threatening power generation in Nigeria, GenCos lament

Inadequate gas supply hampering 24-hour electricity distribution in Aba

The Power Generation Companies (GenCos) have decried the impact of inadequate payment for electricity generated by them and consumed on the national grid, stating that the increasing debt is a threat to the continued operation of their power generation plants.

According to the Association of Power Generation Companies, in a statement signed by Sani Bello, the Board Chairman and issued to BusinessDay on Sunday, the GenCos have continued to bear the brunt of the liquidity crisis in the Nigerian Electric Supply Industry (NESI), adding that the crises from cash liquidity has reduced GenCos ability to continue to perform their obligations.

Read also:Elumelu urges govt to clear N2trn debt to GenCos

He explained that the GenCos were currently owed over N2 trillion for power generated in addition to the over N1.7trillion funding gap created in the recent supplementary MYTO order 2024 without a designated fund to fill the gap.

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.

Read also:DisCos’ plan to buy power from GenCos hits hurdles

He noted that the system constraints, policies & regulations that are not investors friendly, increasing debts owed by the FGN without a clear financing plan, lack of firm contracts and a market devoid of guarantees but based on best endeavours was hampering future planning and expansion.

He decried that the power generated by GenCos have continued to be consumed in full without corresponding full payment, notwithstanding the commencement of the partial activation of Contracts in the NESI which took effect from July 1, 2022, the risks of inflation, the minimum remittance order among others.

He also noted the forex volatility with no dedicated window to cushion the effect of the forex impact, the supplementary MYTO order which leaves about 90 percent of GenCos monthly invoices unmet without a bankable securitisation, or financing plan.

Read also:GENCOS decry 24% post-privatisation power increase, seeks data-driven market

“This situation has dire consequences for the GenCos and by extension the entire power value chain.

“In the light of the severity of the issues, the GenCos are requesting that immediate and expedited action is taken to prevent national security challenges that may result from the failure of the GenCos to sustain steady generation of electricity of Nigerians.

“GenCos liquidity challenges is further worsened by the various policies introduced such as the payment waterfall in the NESI, which deprioritizes payment to GenCos. The implication of this, is that GenCos only get paid a portion of their invoices (9%, 11%) from whatever amount is left.

“This is an aberration as it is a clear departure from existing terms of the Power Purchase Agreement (PPA) guiding the contractual relationship between GenCos and the Nigeria Bulk Electricity Trading Plc (NBET).

“GenCos should be accorded the utmost priority when it comes to payment to enable them to have the capacity to continue to produce the electricity which is the product around which the entire power value chain is built,” Bello said.