Power Gencos Gear Up for Force Majeure Over N600bn Debt

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Stories by Chineme Okafor in Abuja

Electricity generation companies (Gencos) in Nigeria’s power sector may be forced to declare force majeure on their operations anytime soon on account of accumulated debts owed them by the market since 2013, a document seen by THISDAY has disclosed.
The document obtained in Abuja indicated that the Gencos were weighed down by the huge financial debt the market owed them.

It equally showed the Gencos’ frustration with the settlement status of their invoices by the Nigerian Bulk Electricity Trading Plc (NBET) which it accused of being inefficient and failing to pay them 100 per cent of their invoices as reportedly agreed in their Power Purchase Agreements (PPAs).

According to document which contained the views of the Gencos on the Business Continuity Regulation of the Nigerian Electricity Regulatory Commission (NERC), the Gencos are seeking that the regulation is holistic in its implementation instead of simply focusing on them and the distribution companies (Discos) alone.

In it, the Gencos claimed the NBET had not fulfilled its obligations to them, noting that the contractual agreements they have with the agency are not respected.

“It is further imperative to bring to the attention of the commission the various challenges of the Gencos with the cost of generating electricity on the rise. Liquidity squeeze is on the top burner of all the challenges faced by Gencos who are owed over N600 billion in accumulated debt for power generated and supplied from 1st November 2013 till end of 2016 along with arrears for 2017, which has culminated,” the document stated.

It noted that the NBET was established to act as a buffer in the market regardless of the Discos bank guarantees, adding that while the functions of the NBET is not contingent upon the Discos fulfilling their obligations to the market, the NBET is largely guilty of various business continuity failure events in the power market.

The Gencos listed the alleged failures of the NBET to include performance obligations failure; compliance obligations failure; license obligations failure; financial obligations failure; contractual obligations failure; liquidation events; and financial constraints.

“NBET has consistently failed to meet its obligation to the Gencos. The lack of service level agreement which contains key performance indicators is a problem.
“It is therefore evidently clear that NBET has failed to meet the minimum performance target from 1st February 2015, to date.

“The fact that NBET has failed in its obligation as a licensee cannot be overemphasised. What is left is for NERC to play its part by relieving the market of such burden by sanctioning the non-performance.

“With a debt burden of nearly a trillion naira by a licensee, who ought to be a buffer, is not only ridiculous but a major failure event which the regulator as the arbiter needs to handle expeditiously. The contract, a PPA, simply say Genco supply power and NBET will pay 100 per cent. NBET has failed woefully on this obligation,” said the document.

It further added that: “It is only a matter of time before a liquidation suit is filed against NBET. The commission does not need further evidence before ascertaining that NBET has failed to meet its financial obligations. Allowing it to sign more PPA is detrimental to the market which the commission regulates.

In addition, Gencos have not failed but been incapacitated by NBET’s failure to provide the needed financial security. Gencos are gearing up to declare force majeure due to NBET’s failure.”

Further, the Gencos said they were not in support of the NERC’s proposal to decouple the revenue of Discos in the planned tariff review. They claimed the mechanism could have an undesired effect of rewarding indolence to market licensees and may mean that volume of energy sales will impact them.

They urged the NERC to first address other market dislocations that make for efficient electricity market operations before considering the revenue decoupling idea.