Why GenCos received less than 40% of 2024 invoice

…Only 5 of 30 plants have effective contracts

The Nigerian Electricity Regulatory Commission (NERC) has admitted that power generation companies in the country have so far received less than 40 percent of their 2024 invoice.

Yusuf Ali, Commissioner, Planning Research & Strategy at NERC, made this known at the 15th edition of the PwC’s Annual Power and Utilities Roundtable themed “Reigniting hope in Nigeria’s electric power sector” in Lagos.

“I’m impressed that they’re still powering Nigeria,” Ali said. “Because there’s no month this year where they’ve received up to 40 percent of the invoice issued.”

He said the GenCos, however, continues to give 100 percent output despite these shortcomings, “I don’t know a business in Nigeria where somebody gives you a service 100 percent despite getting less than 40 percent invoice monthly.”

In June, power generation companies in Nigeria raised concerns about the potential collapse of their operations due to a massive debt of N2 trillion and a projected funding shortfall of N1.7 trillion, as outlined in the 2024 Multi-Year Tariff Order.

Read also: FG begins settlement N1.3tn owed to GenCos with N205bn

In a statement by Sani Bello, Chairman of the GenCos’ Board, the companies revealed that only around 10 percent of their monthly invoices for electricity supplied to the national grid were being settled.

Bello emphasised that among the various challenges facing the sector, cash liquidity was the most critical, severely limiting the GenCos’ capacity to meet their obligations and posing a serious threat to the stability of the entire electricity value chain.

He said: “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.

“The power generated by GenCos has continued to be consumed in full without corresponding full payment, notwithstanding the commencement of the Partial Activation of Contracts in the Nigerian Electricity Supply Industry (NESI) which took effect from July 1, 2022.

“The minimum remittance order, bilateral market declaration, waterfall arrangement, the risks of inflation, 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.”

Bello said the situation has dire consequences for GenCos and by extension the entire power value chain. ”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 Power Sector Recovery Operation 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.”

On the other hand, NERC revealed that only 5 of 30 plants have effective contracts while others on best endeavour contracts.

“The current contracting framework for bulk energy procurement in the NESI is not working,” the Commission stated. “Lack of effective contracts has eroded market discipline as well as revenue assurance for GenCos – compromising capacity recovery/sustenance.”

Natural gas supply, which accounts for 80 percent of installed capacity, cannot be secured unless there are firm contracts, NERC revealed.

“Available generation capacity hovering at 5 gigawatts (5000 megawatts with an estimated 8GW (8000MW) stranded,” the Commission stated.