Debts for energy supplied by Nigeria amounting to over $5 million may stand in the way of any claim for breach of contracts following Nigeria’s decision to cut off its power source in line with sanctions imposed by the regional bloc.
A review of the latest quarterly electricity sector performance report published by the Nigerian Electricity Regulatory Commission (NERC) shows that Niger is owning $5.48 million for energy already supplied and was already contemplating adding some pressure to compel it to pay.
“The non-remittance by bilateral consumers continues a trend that was highlighted in the past quarterly reports. The market operator must invoke the provision of the market rules to curtail the payment indiscipline being exhibited by the various market participants,” NERC said in the report.
In regular contracts, an inability to fulfill obligations results in a breach, and often compensation claims follow, but in the current situation where this breach stems from sanctions following a coup in Niger, the issues are no longer straightforward.
Analysts say military action in Niger may trigger force majeure, a provision in business contracts for when unforeseeable circumstances prevent someone from fulfilling a contract. This could release Niger from honouring its obligations for the period the disconnection lasts, while it seeks compensation against the Transmission Company of Nigeria (TCN) or even the Nigeria Bulk Electricity Trading Plc (NBET) for breach of contract.
However, the country’s huge debt may provide Nigeria with a valid justification for disconnecting the country, even though the decision was triggered by the military coup that deposed the government of President Mohamed Bazoum.
“Considering that the seller is being owed, there may be justification for disconnection apart from the force majeure situation,” Dolapo Kukoyi, managing partner of Detail Commercial Solicitors, said.
Following a military coup in Niger on July 26 where the country’s presidential guard detained Bazoum, and the commander general Abdourahamane Tchiani proclaimed himself the leader of a new military junta, Nigeria demanded the reinstatement of the deposed president.
President Bola Tinubu, who was only recently elected chairman of the Economic Community of West African States (ECOWAS), along with the rest of the group, issued a one-week ultimatum to the military junta to restore constitutional order. They also directed the suspension of financial transactions with Niger, and the freezing of “all service transactions, including energy transactions.”
Already, NBET and Mainstream Energy are seeking legal guidance over their exposure in the deal, sources with knowledge of the matter told BusinessDay.
Some fear that the action by the Nigerian government without recourse to the bidding contractual obligations it has with Niger exposes not just the government-owned TCN to breach, but also a successor generation company Mainstream Energy, which generates power that goes to Niger. It could also incentivise the country to search for alternatives, with implications for Nigeria.
This, however, is the least of the concerns of the Nigerian government, which along with its peers in ECOWAS, has ordered the region’s standby force to get ready for a possible invasion of Niger if current negotiations go nowhere.