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An analysis of the Nigerian Bulk Electricity Trading Plc (NBET) trading license

The Nigerian Bulk Electricity Trading Plc (NBET) is one of the licensees of the Nigerian Electricity Regulatory Commission (NERC). NBET was founded in July 2011 and was issued its operational trading license in November 2011. The term of the license is for ten (10) years and would expire by November 2021, unless renewed by the NERC. In accordance with its licensing procedure, the NERC has commenced the stakeholder engagement on the application for the renewal of NBET’s license.

NBET’s objective in a transitional electricity market

NBET is 100% owned by the Federal Government. From the company’s website, NBET “was established as part of the roadmap for power sector reform towards the full implementation of the Electric Power Sector Reform Act (EPSRA)”. According to Wikipedia, NBET is the manager and administrator of the electricity pool in the Nigerian electricity supply industry (NESI). NBET’s mandate is to engage in the purchase of electrical power and ancillary services from both independent power producers (IPP) and successor generation companies (GenCos) under long term power purchase agreements (PPA), and the resale of electric power to successor electricity distribution companies and eligible customers under vesting contracts.

NBET was designed as an interim or transitional structure in the power sector to provide assurance of payment to GenCos, as well as to provide assurance of supply of electric power to DisCos post-privatization of the nascent electricity market. In fulfilment of this objective of providing assurance of payment to GenCos, NBET was “capitalized” by the Federal Government with the sum of US$750 million by 2013. NBET’s capitalization came from the proceeds from the sale of Egbin Power Station, and proceeds from a $500million Eurobond issued in 2013. NBET was also backed by a Partial Risk Guarantee (PRG) from the World Bank.

A review of NBET license terms and conditions

As stated, NBET’s operating license is for 10 years, unless renewed by the NERC. A review of NBET’s license terms brings to the fore some key conditions under which NBET should operate under a license.

Condition 2 (5) of NBET’s license states that “The Licensee shall at all times have at its disposal financial, technical and managerial resources and capabilities sufficient to allow the Licensee to fully discharge its obligations in respect of the volume of the trading business undertaken by it…” Condition 4 of the license imposes certain financial requirements on NBET:

4. The Licensee shall maintain at all times capital adequacy and net worth of 7.5% of its Annual Volume of Electricity Traded (kWh/year) in Naira.

5. The Licensee shall at the end of every year demonstrate his creditworthiness, duly certified by an auditor, to the satisfaction of the Commission.

6. All trading transaction shall be undertaken through a proper payment security mechanism enforced by the Commission.

Any pertinent review of NBET’s performance under its license over the last ten years should be to ascertain if the above conditions of its license were either met or breached and/or continues to be breached. In other words, does NBET have the financial capacity and resources as a going concern to carry on the business of purchasing bulk electricity from GenCos under firm payment terms for resale to DisCos and eligible customers?

The answer is perhaps negative.

In reality, NBET was never capitalized and had no equity capital to back up its financial obligations under the PPAs. The Egbin sales proceeds were not remitted to the company. The $350 million Eurobond proceeds earmarked for NBET’s capitalization was given back to the Debt Management Office (DMO) by NBET without being depleted. To date, NBET’s sources of funding to meet its payment obligations to GenCos and gas suppliers are limited to the insufficient monthly market remittances from DisCos for the sale of energy, and intervention loans from the Central Bank of Nigeria (CBN), guaranteed by the Federal Ministry of Finance. In its 10-year history, save for a few months after the CBN intervention loan, NBET has never 100% settled the invoices of GenCos for energy purchased. In addition, NBET has also not been able to collect market revenues from DisCos in full, despite having executed firm vesting contracts with DisCos. It also has not been able to enforce all DisCos to post their three (3) months Letters of Credit (L/C) to backstop their purchase of electricity as required by the Market Rules. Furthermore, for DisCos who have posted their L/Cs, NBET cannot draw down on the L/Cs to make whole any shortfall payment to GenCos.

Read also: Benin Disco spends N8.5bn monthly to purchase power from NBET – Osibodu

In the absence of any publicly available audited financial statement to ascertain its true financial health, NBET may likely have a negative capitalization. Total NBET liabilities are in excess of N1.5 trillion, namely the N701 billion and a further N600 billion provided to NBET by the Central Bank of Nigeria (CBN) through the Federal Ministry of Finance under the Payment Assurance Guarantee (PAG) scheme, and other market shortfall payments to GenCos and their gas suppliers.

NBET challenges

The NBET structure was an important structure in the overall market design of the NESI. NBET’s shortcomings are an indication that the market design of the Nigerian power sector market hasn’t worked and needs a huge re-tweak.

There are many issues that affect NBET’s ability to effectively meet its obligations as envisaged in its license and terms of the establishment. First is the design of NBET as a “trading” company. In reality, NBET is simply or has evolved into a settlement organization, to settle the invoices of GenCos for electric power generated and dispatched against payment receipts from DisCos. This is a deviation from its priorities being the “management and administration of the financial flows for the physical supplies on the network,” and “operation of a competitive market that encourages efficient value discovery for commodity and capacity” as stated on its website. Besides, NBET makes no spread in the so-called “trading” of electricity. Thus it is neither incentivized to “trade” efficiently nor be financially sustainable outside of budgetary allocations from the Federal Government.

Secondly, NBET seems to have been relegated to the settlement of energy invoices of GenCos and their gas producers (for thermal GenCos), while the task of settlement of ancillary services and transmission invoices is delegated to the Market Operator (MO). In other words, there are two settlement organizations in an electricity market that is both financially illiquid and barely able to generate, dispatch, and retail 5GW of electricity! In our view, the settlement functions of NBET and the MO are very expensive duplication of roles in the power sector. Both roles can be carried out by a single entity.

A major objective for establishing NBET as a credit-worthy and bankable counter-party to enter into PPAs with GenCos, was to incentivize the private sector to invest in new generation capacity. Indeed, NBET’s mission statement on its website is to “be an efficient & effective catalyst for investment into the Nigeria electricity market by ensuring transparency & guaranteeing payment”, while its vision statement is “to create a financially viable electricity market”. The creation of NBET led to the development of the 450 MW Azura IPP in Edo State. It also led to the restoration of installed generation capacity by some of the PHCN Successor GenCos. In 2016, NBET initialed PPAs with 14 on-grid solar IPP developers, with a total capacity of over 1000 MW. Unfortunately, the development of the solar IPPs eventually did not proceed as the execution of the PPAs is still pending. Today, NBET’s ability to catalyse investments into the power sector is doubtful.

However, NBET’s mission and achievements in attracting investments into new generation capacity have to be juxtaposed with NBET’s inability to activate PPAs and firm Gas Supply Agreements (GSA) with Successor GenCos, more than seven years after the privatization of these GenCos. The case of the NIPP GenCos is even more embarrassing to the Federal Government and NBET, as none of the NIPP GenCos have PPAs with NBET.

To renew or not to renew?

In our view, the renewal of NBET’s license is academic. While NBET’s contracts, obligations and liabilities with GenCos can be novated to DisCos, NBET is still quite necessary to manage the liabilities and obligations under the PPAs with GenCos and the Vesting Contracts with DisCos. Besides, novating NBET’s contracts to DisCos now would be a catastrophic event to both DisCos and GenCos. Save for renewing NBET’s license, there are no immediate alternatives that won’t be further catastrophic to the power sector.

However, the renewal of NBET’s license should be done with a view to winding down NBET over a defined period. Thus new license conditions should include obligations for NBET to publicly audit its books to ascertain the true financial position of the company, activation of PPAs and GSAs that are yet to be activated, re-negotiation of some of the PPAs and GSAs it currently manages, activating the novation process in condition 5 of its license so as to allow for an orderly winding-up process of NBET and novation of its contracts and legacy debts to DisCos, and developing bilateral contracts between GenCos and DisCos. The NERC seem to be thinking in this direction. There is also the need to look at merging the market settlement functions of NBET and the MO into a single entity.

Alternatively, NBET could evolve into a proper wholesale electricity trading company or electricity trading exchange, similar to the India Electricity Exchange (IEX) or Power Exchange India (PXIL). But for this to happen, NERC would have to reign in the excesses of some badly operated and recalcitrant DisCos that have no compulsion to provide reliable electricity supply services to their customers. Benin Electricity Distribution Company (BEDC) is one of such DisCos. Despite the abundance of generation and transmission capacity within its network and a well-built distribution network, BEDC rations electricity supply to its residential and commercial customers for only 7 hours daily, preferring to adopt a discriminatory approach to providing increased hours of electricity supply to some of its customers. Citizens of Kabul in Afghanistan enjoy more reliable supply of electricity than BEDC customers. Luckily, there is a huge market for eligible customers that NBET can participate in, even though NERC again would need to make changes to the extant Eligible Customer (EC) regulations and perhaps the MYTO tariff methodology to allow NBET participate as an Exchange in the EC market.

Should NBET chose to transform into an electricity exchange, it must be prepared to make significant investments in IT infrastructure and human capital, and also be adequately capitalized to support its exchange functions. Electricity is traded as a commodity. The operations of the Nigeria Stock Exchange (NSE), now known as the Nigerian Exchange Group (NGX) after its demutualization, is a good case study for the NBET team to look at.

Omonfoman is an energy consultant and the CEO of New Hampshire Capital Ltd. He can be reached on

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