Before the Power Sector Crumbles

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Power Generation Companies in Nigeria recently instituted legal action against the federal government, alleging unfair treatment against them, their investors and suppliers, while conferring preferential treatment on Azura Power West Africa Limited and Accugas Limited. Chika Amanze-Nwachuku and Chineme Okafor warn of the dire consequences of such unfair practices in the electricity sector

The twin problem of liquidity and poor gas supply are the major challenges the electricity generation companies (Gencos) have been contending with since the power sector privation.
The failure to pay the GENCOs their entitlement for electricity generated by them, which have since been consumed by electricity consumers in Nigeria has continued to have huge negative impact on the power generation companies such that their corporate existence has now come under severe threat.

The Gencos put the total amount owed them for electricity they generated and supplied to about N800billion. Together with capacity and interest payments due to them, the Gencos are owed in excess of N1trillion.
It was gathered that the huge indebtedness was sequel to the Nigeria Bulk Electricity Trading (NBET’s) consistent default in payment of all the electricity generated by the Gencos, an action that is in breach of its contractual obligation, which required that the Gencos be paid in fully (100%) not later than 45 days of invoice submission, and upon delay in payment be paid with interest at the agreed rate.

Owing to the NBET’s failure to pay the Gencos, the power firms, in turn default in meeting their obligations to their lenders, O&M contractors, equipment manufacturers, Service providers and other persons and entities engaged by them for the purpose of ensuring the smooth and effectual generation of power in all power plants owned, controlled and/or managed by the Gencos.

To address the huge indebtedness, the FG in conjunction with the Ministry of Power, Works and Housing, NBET, Central Bank of Nigeria (CBN) and the Gencos created as a temporary relief, i.e. the N701billion Payment Assurance Facility under which the Gencos were to be paid for all electricity generated and supplied from January 2017 to December 2018.

The process of working out of the facility and the presentation of same to the electricity generating companies clearly indicated that the N701billion facility was meant to pay existing Gencos as at the time the facility was put in place, as the target beneficiaries.

But the companies said that government has not kept faith with payments from the N701billion facility as payment timelines are not clear, regular or consistent.
According to the power firms, only 80per cent of invoiced amounts are paid whenever the FG chooses to pay, with 90% of gas suppliers invoices paid directly to gas suppliers out of the said 80% payment.

They said: “Whatever is left of any payment tranche is hardly sufficient for any meaningful activities of the GENCOs. Not only that the payments are insufficient, the outstanding payments owed the GENCOs before the introduction of the N701bn facility and the monthly shortfall payment of 20% of invoices, have continued to pile up without any clear sight of how these will be paid to the GENCOs.”

The Gencos further stated that while they appreciate the introduction of the N701billion facility, it is not a privilege and neither is it a favour to them as they are entitled to full payment for electricity generated by them at their respective costs and supplied to the national grid.

The power companies said they relied on the payment assurance representations made by the federal government to alter their positions to their own detriment by entering into contractual obligations to ensure recovery of additional plants capacities and effective operation of the plants.

They noted that while they were getting very close to a point where their plants might not be able to generate power again and be shut down, “the federal government deliberately and clearly entered into certain engagements with Azura and Accugas, under which both firms were given the preferential treatment of having a World Bank Partial Risk Guarantee supported by the Sovereign Guarantee of the FG securing all payments due from NBET to Azura for power generated by the new Independent Power Plant and to Accugas for gas supplied to the Calabar NIPP.”

Decision to approach the court
The unfair treatment prompted the Gencos to institute a legal action against the Federal Government of Nigeria for deliberately meting out discriminatory treatment to them and their gas suppliers with intent to harm their business interests, while conferring preferential treatment on Azura Power West Africa Limited and Accugas Limited to the detriment of the power sector.

The suit brought before a Federal High Court, Abuja has the Gencos represented by Mainstream Energy Solutions Limited, Transcorp Power Limited, Egbin Power Plc and Northsouth Power Company Limited, who are all Plaintiffs in the suit. Cited as defendants in the suit are FGN, the CBN, Minister of Power, Works & Housing, the NBET, Azura Power West Africa Limited and Accugas Limited.

In the suit, the Gencos alleged that by conferring preferential treatments on Azura Power and Accugas Limited, the government was deliberately meting out discriminatory treatment to them and their gas suppliers with the intent to harm their business interests and run them out of operations.
According to firms, such preferential treatment is also detrimental to the country’s electricity market.

The power firms said the government and its agents, “have treated and intends to continue treating them”, their investors and gas suppliers unfairly and in a discriminatory manner notwithstanding the fact that they have been bending backwards to continue to generate electricity for the national grid.

They claimed that they have been making huge sacrifices, bearing the excruciating burden of not being paid for electricity generated and sold to NBET, and are facing the threat of going into extinction as a result of their huge indebtedness to banks and financiers, who provided them the foreign currency-denominated acquisition loans with which they acquired the plants in 2013 from the government through its privatisation exercise; yet the government thinks so ill of them.

The Gencos further averred that whereas the government did not give them such risk guarantees when they acquired the power assets during the privatisation exercise, and at the time, the risk was so enormous, they were piqued the government agreed to give same to Azura and Accugas, in addition to their payments being treated as a first line charge.

This, they stated was a discriminatory treatment to them, hence their legal action against the government and parties involved.
The Gencos further stated that the government had concluded to immediately pay Azura and Accugas for their first invoices totaling $8.140 million from the N701 billion facility, which in their minds was meant for them alone.

The Gencos’ contention was that the facility which was not enough to meet the full payments of their invoices would now be used by the government to pay Azura and Accugas.
In addition to their worries of the N701 billion being depleted through payments to Azura and Accugas, the Gencos also said they were troubled that “the government’s discrimination against them was being supported by the World Bank”, which they claimed, has interest in one of the companies.

Notwithstanding their legal action, the Gencos however indicated their willingness to engage the government in a dialogue to address their challenges and complaints.
They noted that they had prior to instituting the suit, made frantic efforts to draw the attention of the government to the implications of the one-sided preferential treatment to the duo of Azura and Accugas in the sector.

The plaintiff companies said they had witten an official memo to the Minister of Power, Works and Housing, Mr. Babatunde Fashola, on February 13, 2018, and had also sent a copy to the Managing Director of the NBET, Dr. Marilyn Amobi, in which they claimed they were operating under sets of rules that were different from what applied to Azura and Accugas in the power sector, and that it was unfair to them.

They equally stated that they were in a dire situation, and if the government failed to address their complaints, it would inevitably affect their capacities to continue to generate electricity.
They are therefore demanding that the government pay them all outstanding indebtedness and interests due to them for electricity supplied and ancillary services they provided; pay 100 per cent and not 80 per cent of all invoices to be submitted by them in N701 billion facility, as well as pay all sums due to them as capacity charge from 2013 till date.

The GENCOs also want the court to stop the government from admitting any new beneficiary into the N701 billion facility without increasing it correspondingly; pay the balance of N213 billion to them from the CBN Electricity Market Stabilisation Fund; and remove all administrative bottlenecks delaying drawdown of payment assurance funds, in addition to providing sovereign and partial risk guarantees for all payment obligations to them.
Meanwhile, the presiding judge, Justice Binta Nyako has fixed April 16 2018 for hearing of the Gencos application for interim injunction.