BREAKING: Gencos Demand Immediate Payment of N4trn Debt to Avoid Shutdown of Nigeria’s Power Sector

Electricity Generation Companies (Gencos) operating in Nigeria on Monday demanded the settlement of debts owed by the federal government, noting that otherwise the prevailing situation could lead to a complete shutdown of the power sector in the country.

The power generators also urged the federal government to institute a repayment plan backed by security guarantees from the World Bank or the African Development Bank (AfDB).

In a statement in Abuja signed by the Chairman, Board of Trustees (BoT) of Power Generation Companies, Col. Sani Bello (rtd.), the generation companies said that the backlog owed them are in two folds: N2 trillion owed in 2024 and N1.9 trillion in legacy debts.

But THISDAY recalls that out of the huge debt, the federal government in August 2024 said it had paid about N205 billion, citing the need to raise the level of liquidity in the power sector at the time.

However, the Gencos said on Monday that they were constrained to draw the attention of the government and key stakeholders to the need to urgently address the issue of inadequate payment for electricity generated by them and consumed on the national grid, explaining that they have continued to bear the brunt of the liquidity crisis in the Nigerian Electric Supply Industry (NESI).

According to the Gencos, they have continued to demonstrate absolute commitment by ramping capacities in line with their contract over the last 10 years, amid system constraints as well as policies & regulations that are not investor-friendly, increasing debts owed by the government, without a clear financing plan.

Notwithstanding this and other severe difficulties since their takeover in 2013, the Gencos explained that they had kept to the terms of their contractual agreements by ramping up capacity which has been largely constrained systemically.

“In the light of the severity of the issues highlighted above, the Gencos are requesting that immediate and expedited action is taken to prevent national security challenges that may result from the failure of the Gencos to sustain steady generation of electricity for Nigerians.

“The 2024 collection rate has dropped below 30 per cent, and 2025 is not any better, severely affecting Gencos’ ability to meet financial obligations. High corporate income tax, concession fees, royalty charges, and new Financial Reporting Council (FRC) compliance obligations are further straining Gencos’ revenue.

“Gencos are currently owed about N4 trillion (N2 trillion for 2024 and N1.9 trillion in legacy debts). No possible solutions, including cash payments, financial instruments, and debt swaps are in sight.

“The 2025 government budget allocates only N900 billion, raising concerns about its adequacy to cover arrears and future payments. The power generated by Gencos has continued to be consumed in full without corresponding full payment.

“This is notwithstanding the commencement of the Partial Activation of Contracts in the 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 per cent of Gencos monthly invoices unmet without a bankable securitisation, or financing plan.

“This situation has dire consequences for the Gencos and by extension the entire power value chain,” the Association of Power Generation Companies (APGC) stated.

According to the group, the Gencos’ liquidity challenges are further worsened by the various policies introduced such as the payment waterfall in the NESI, which de-prioritises payment to Gencos as service providers, while others usually receive 100 per cent payment of their market invoices starting from May 2019.

The Gencos stressed that as a result of this, no one is under pressure to ensure their invoices are fully settled, as they only get paid a portion of their invoices (9 per cent, 11 per cent) from whatever amount is left.

“This is an aberration as it is a clear departure from existing terms of the Power Purchase Agreement (PPA) guiding the contractual relationship between Gencos and the Nigeria Bulk Electricity Trading Plc (NBET), by which NBET as buyer has contracted to purchase the available capacity as agreed under the PPA.

“Gencos should be accorded the utmost priority when it comes to payment to enable them to have the capacity to continue to produce the electricity which is the product around which the entire power value chain is built,” the power generators stated.

Against the backdrop of the many challenges facing the power sector in Nigeria, the crises from cash liquidity, the group said, has reduced Gencos’ ability to continue to perform their obligations, thereby threatening to completely undermine the electricity value chain.

Besides , the Gencos stated that their expectations of being settled through external support such as the World Bank has also been dampened due to other market participants’ inability to meet their respective Distribution Linked Indicators (DLIs), enshrined in the Power Sector Recovery Programme (PSRP).

“Access to forex is another problem. Given that major operation and maintenance needs in the generation sub-sector are dollarised, the importance of a specialised window or stable dollar allocation option for the Gencos cannot be overemphasised.

“GenCos are of the position that there is a need for a coordinated approach by all stakeholders in the NESI to address the liquidity issue realistically and sustainably in the power sector so that Nigerians can have access to reliable electricity supply. On the foregoing, we hereby demand the following urgently to put Gencos in a position to continue generating power for transmission and distribution to Nigerians.

“Immediate implementation of payment plans to settle all outstanding Gencos invoices. Reprioritisation of payments under the waterfall arrangement to give full priority to a 100 per cent payment of Gencos’ invoices as at when due.

“Provision of payment security (guarantees) backed by World Bank/AfDB to guarantee full payment to Gencos, to enable them to meet their critical needs, improve generation to Nigeria and implement their respective growth and expansion plans.

“Ensuring greater transparency in the billing, collection, and remittance process of sector funds. Investors focused and economy growth friendly policies and regulations to incentivise investors. Firm monitoring and implementation of bilateral arrangement to create market confidence and ensure the viability and credit worthiness of the power sector.

“Ensuring full effectiveness of all market agreements, firm monitoring, and enforcement of the rules by the regulator on all market participants,” the Gencos stated.

The Gencos stated that they were of the position that the liquidity challenge threatening the continued operation of their power generation plants must be addressed urgently, and sustainably too.

Besides being owed huge debts, the Gencos stated that they are also operating under very harsh monetary and fiscal conditions, occasioned by the economic realities that face the country today.

“The flow of money within the power industry is one of the fundamental problems preventing Nigerians from enjoying continued and sustainable improvement in electricity supply.

“This would enable Gencos to meet their critical needs which would, in turn, ensure that they sustainably generate power, so that Nigerians can have better access to reliable electricity supply. Gencos would like to re-emphasise that this request requires urgent attention,” the group added.