Success Nwogu 
National blackout looms as GenCos threaten shutdown over N4 trillion electricity debt owed electricity generation companies, which has a long history of controversy and great implications for Nigeria’s economy, SUCCESS NWOGU writes in this twoparts series
The recent outcry by the Association of Power Generation Companies (APGN), which comprises 23 electricity generation companies in Nigeria, over the N4 trillion debt owed the members and its warning that if unresolved, would lead to a prolonged national blackout and consequently socio-economic, industrial and business losses requires urgent attention.
Looming blackout
The Chairman of the Board of Trustees, APGN, Col. Sani Bello (rtd) had warned that the electricity distribution companies could no longer guarantee a steady electricity supply if they were not paid the money they were being owed.
He further lamented that they were enmeshed in the liquidity crisis in the electricity market as a result of the N4 trillion debt.
He warned that the debt burden and operational constraints currently facing the companies could force an imminent shutdown of power plants if urgent interventions were not implemented.
According to them, the continued nonpayment for electricity generated and consumed on the national grid was pushing the Nigerian power sector towards a total collapse.
The statement signed by Bello was titled; Over N4tn unpaid invoices threaten GenCos imminent shutdown. The GENCOs alleged lack of a clear financing plan from the federal government, adding that there was worsening fiscal and operational constraints within the Nigerian electricity supply industry.
According to them, the Nigerian Bulk Electricity Trading Plc and other stakeholders neglected GenCos in the application of the NESI’s “waterfall arrangement.”
They alleged that other service providers receive 100 per cent of their market invoices while GenCos got between nine and 11 per cent of what is due to them. They also cited lack of firm contracts, failure to enforce power purchase agreements, and delays in external support like the World Bank Power Sector Recovery Operation (PSRO) as critical challenges facing the sector.
According to them, despite investing heavily to ramp up generation since the 2013 privatisation, GenCos continue to operate under investor-unfriendly policies, with no bankable contracts or reliable financing plans.
They called on the federal government to implement a structured payment plan and address regulatory and tax burdens that are further squeezing their revenue.
The statement read in part: “The GENCOs are constrained to issue this press release to draw the attention of the federal 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, which is currently threatening the continued operation of their power generation plants.
“The 23 power generation companies in Nigeria have warned that they can no longer guarantee a steady electricity supply due to the worsening liquidity crisis in the electricity market, with outstanding debts now exceeding N4tn.
“Against the backdrop of the many challenges facing the power sector in Nigeria, the crises from cash liquidity are on the top burner and have reduced GenCos’ ability to continue to perform their obligations, thereby threatening to completely undermine the Electricity value chain.
“In the light of the severity of the issues highlighted above, the GenCos are requesting that immediate and expedited action be taken to prevent national security challenges that may result from the failure of the GenCos to sustain steady generation of electricity for Nigerians.”
Recall that in June, 2024, the GenCos had raised the alarm over the imminent collapse of their operations following a huge debt of N2 trillion and an estimated funding gap of N1.7 trillion contained in the 2024 Multi-Year Tariff Order.
The companies said so far only about 10 per cent of its monthly invoices for power supplied to the national grid are being paid.
The GenCos in a statement issued by Bello said the companies have continued to bear the full brunt of the liquidity challenges facing the Nigerian electricity market.
Bello noted that of all the crises facing the sector, cash liquidity was on the top burner and had reduced GenCos’ ability to continue to perform their obligations, thereby threatening to completely u n d e r m i n e the 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 c o n t r a c t u a l a g re e m e n t s by ramping up capacity which has largely suffered systemic constraints.
“ G e n C o s on their part as responsible investors, with patriotic zeal have made large scale investments and have continued to demonstrate absolute commitment by ramping capacities in line with their contract these over 10 years, amid system constraints, policies and regulations that are not investors friendly, increasing debts owed by the FGN without a clear financing plan, lack of firm contracts and a market devoid of guarantees but based on best endeavours, thereby hampering future planning and expansion.
“The power generated by GenCos have continued to be consumed in full without corresponding full payment, 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 Multi-Year Tariff 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. “GenCos are currently owed over N2trillion for power they generated, put onto the national grid, and consumed by end users.
This is in addition to the over N1.7 trillion, funding gap created in the recent supplementary MYTO order 2024 without a designated fund to fill the gap.
This huge debt outlay is now greatly inhibiting GenCos’ ability to meet their obligations to lenders, Operations and Maintenance, (O&M) 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 Rectory Operation (PSRO) has also been dampened due to other market participants’ inability to meet heir respective distribution linked indicators (DLIs), enshrined in the Power Sector Recovery Program (PSRP).”
Realising the negative effects of national blackout, APGC raised many alarms on the implications of national short-downs and demanded solutions to the myriads of challenges confronting the members.
Bleak future
On August, 2018 Executive Secretary of APGC, Dr Joy Ogaji had warned that GENCOs might shut down plants over the inability of the Transmission Company of Nigeria (TCN) to transmit available volume of electricity generated into the national grid. She said the generation companies (GenCos) were increasingly facing lower capacity utilisation aside from operating their turbines/machines far from the base-load settings.
According to her, load shedding and power fluctuations in the country have resulted in low efficiency in the power system.
She cautioned that operating the plants outside base-load conditions has damaging effects on the plants and can lead to more consumption of gas for thermal plants, which is an extra cost on their part.
Also, she pointed out that in April alone, TCN could only transmit an average of 3985.15MW, 53 per cent of the available capacity of 7484.88MW produced daily by the GenCos. Ogaji said: “All thermal and hydro power plants are designed to operate optimally and efficiently at base load.
Operating these plants outside base-load conditions is leading to a reduction in efficiency, with implications for an increase in consumption of gas for thermal plants by as much as 15 to 20 per cent (extra cost not recognised by the Nigerian Bulk Electricity Trading (NBET) nor captured in the Multi-Year Tariff Order (MYTO.
“Generally, the damaging effects include thermal stress on steam turbine blades, creep of compressor and turbine blades, cracks on exhaust sleeves, irregular heating and cooling cycles of hot gas path components, cracks in ceramic tiles of the combustion chamber, defective gas control valves due to wear and tear, among other effects.
“The grid cannot conveniently take over 4,500MW without rejecting load. Generation above 5,000 MW may either be lost or rejected either by the Distribution Companies (DisCos) or the Transmission Service Provider’s (TSP) inabilities largely due to infrastructural challenges like line cuts and transformer faults and unavailability thereby causing grid frequency to be very high.”
Challenges
Also on January 11, 2019, GENCOs warned that they would shut down power plants across the county if the federal government failed to intervene in the challenges troubling them.
Ogaji highlighted the challenges the GENCOs were grappling with. She noted that there was a decline in available generation and attributed the decline to various challenges experienced by its members in the electricity market.
Ogali identified the challenges to include gas constraints, on-going maintenance of power plants and low demand by DisCos. She said: “Available generation capability experienced a drop due to various factors such as gas constraints, on-going maintenance by some gas suppliers and Low load demand by DisCos which resulted in reduced generation or outage of some power plants.
“For instance; Afam power Plc (Afam VI Gas/Steam), GT12, 13 and ST10 power plants were shut down for a period of about 16 days due to a planned maintenance that was carried out by the gas suppliers on their facilities.
Although Afam power Plc was duly notified about the maintenance, it resulted in a reduction of Afams available generation capability from about 490MW to 0MW.
“Also within this period, most of the National Integrated Power Projects (NIPPs) suffered from various gas constraints, for example Alaoji NIPP, Sapele NIPP, Olorunsogo NIPP, Omotosho NIPP, etc.
Some of the companies’ generation capability dropped to 0 due to the outage of their power plants which was as a result of gas constraints.
Case in point was Aloaji NIPP whose supply was cut off by their gas suppliers due to their inability to pay for their gas. “Jebba Power plant generation capability reduced by about 110MW to 360MW due to low load demand.
This reduced demand was also suffered by Egbin Power plant and FIPL-Omoku.” She added: “The decline was not an act of rebellion by the GENCOS neither was it deliberate but was beyond their control.
It can be traced to the various challenges experienced by the GENCOS in the electricity market such as liquidity issues, power rejection by the DisCos and gas constraints due to the sorry state of the market.
“This should serve as a wake-up call to the federal government to the on-goings in the industry with regards to the GENCOS and if the actions are not taken by the necessary agencies, GENCOS will be forced to shut-down business.”
Nagging issues
The GENCOs are not only challenged by huge debt because as far back as March 2019 they had decried that there is no incentive for them to increase output from their plants.
According to them, their total generation capacity rose to 7,383.04 megawatts in 2018 from 4,214.32MW in 2013, when the power sector was privatised by the Federal Government.
They also noted that in addition, Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) had introduced a revised pricing structure for natural gas in strategic sectors, resulting in an 11 per cent increase in power sector prices.
Sequel to the review, the Domestic Base Price for the power sector increased from $2.18 to $2.42 per MMBTU, while commercial sector pricing was adjusted to $2.92 per MMBTU.
But the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) was reported to have said that natural gas will then be sold at the rate of $2.13 per MMBTU effective April 1.
This was contained in a document signed by the Chief Executive of NMDPRA, Farouk Ahmed, and titled: Announcement on Establishment of The Year 2025 Domestic Base Price and Applicable Wholesale Price of Natural Gas for the Strategic Sectors.
Ahmed, said in line with Section 167, the Third and Fourth Schedule of the Petroleum Industry Act 2021, NMDPRA is mandated to determine the Domestic Base Price and the marketable wholesale price of natural gas supplied to the strategic sectors.
He explained that the DBP was agreed on based on the principle that the price shall not be higher than the average of similar natural gas prices in major emerging countries that are significant producers of natural gas.
Ahmed said: “Accordingly, after due consultation with key industry stakeholders and taking into cognisance the provisions of the PIA and market realities, the NMDPRA hereby establishes the new Domestic Base Price as USD 2.13/MMBtu and wholesale prices of natural gas in the strategic sector, effective 1 April 2025.
For the commercial sector, the DBP is put at $2.63 per MMBTU.” But in December 2024, the FG intervened in tackling gas supply to generation companies after suppliers of the product reportedly planned to halt gas supply to GenCos due to a debt of about N2.7 trillion.
It could be noted that by then over 70 per cent of Nigeria’s power plants are fired by gas, and the lack of feedstock could plunge the nation into darkness.
Debts to GenCos
In December 2020, there were outcries over FG’s debt to the GENCOs rising to N144bn in 92 days. Reports have it that FG incurred the debts through the Nigeria Bulk Electricity Trading Plc in the third quarter of the year for the electricity produced and fed into the national grid.
A document from NBET revealed that the agency purchased electricity in bulk from power generation companies through Power Purchase Agreements and sold it by vesting contracts to the distribution companies, which then supplied it to consumers.
It also showed that GENCOs issued NBET a total invoice of N64.13 billion in July, N67.83 billion in August and N61.30 billion in September.
It stated: “NBET received a total invoice of N193.26 billion from the GenCos in the three-month period, but only paid N49.44 billion, representing 25.58 per cent of the invoice.
“The payment made to the GenCos by the bulk trader in July was N12.22 billion (19.05 per cent) but it rose to N13.49 billion (19.90 per cent) in August and N23.73 billion (38.72 per cent) in September.
“The electricity distribution companies, on the other hand, remitted only N50.68 billion to NBET in Q3’20, out of a total invoice of N189.05 billion.” It added: “For the 11 DisCos, the receipt of a total invoice of N66.33 billion in July, N63.62 billion in August and N59.10 billion in September were made.
“But they paid NBET N12.91 billion in July, N14.89 billion in August and N22.88 billion in September.” Data obtained from the Nigerian Electricity System Operator showed that the total power generation in Nigeria stood at that time was 4,631.60 megawatts.
It was also reported that seven of the 29 power plants on the grid were not generating electricity as of 6am that day. The system operator further stated that the idle plants were Olorunsogo II, Alaoji, Ihovbor, Ibom Power, ASCO, AES and Gbarain.
It explained that by then Nigeria generated most of its electricity from gas-fired power plants, while output from hydropower plants made up about 30 per cent of the total generation.
The system operator put the nation’s installed generation capacity at 12,954.40MW, available capacity at 7,652.60MW transmission wheeling capacity at 7,300MW and the peak generation ever attained at 5520.4MW.
Collison course
The N143.82bn debt brought GENCOs and (NBET) are on a collision course. GENCOs met in Jos last month, and unanimously appealed to the FG to intervene over the debts, which they said was causing serious problems of liquidity in the entire power value chain.
The Director of one of the GENCOs, Egbin Power, Mr Kola Adesina, confirmed that the communiqué at the meeting had been sent to the appropriate quarters to intimate them of the implications of the debts to the entire value chain.
He said that at the meeting of the APGC, members raised concern about the debts. Adesina stated that the total amount owed Egbin by NBET included money for actual energy wheeled out, interest for late payments and available capacity payments.
According to Adesina, “We – all the power generation firms – met to, as one of the agenda, deliberate on the debts NBET is owing us and the implications of these to the sector. Egbin alone was being owned N388 billion since the start of privatisation and this figure varies from one GenCo to another.
“All the owners were there and the concern that was expressed was that this money that is being owed, when are we going to get paid? “The longer it takes us to be paid, the more detrimental to the health and wellbeing of our machines and more importantly to our staff.”
The Egbin boss decried that Nigeria’s power generation had been hovering around 4,000MW in recent years. Egbin, he said had an installed capacity of 1,320MW, consisting of six turbines of 220 megawatts each.
He stated that the plant from 2020 till then had been unable to utilise 175MW of its available capacity due to challenges caused by the debts and gas and transmission constraints.
He said: “At the time when we took over this asset, we were generating on average 400MW of electricity. “Today, we are averaging about 800MW. At one point in time, we went as high as 1,100MW. Invariably, this is an asset of strategic importance to Nigeria.
“The plant needs to be nurtured and maintained. If you don’t give this plant gas, there won’t be electricity. Gas is not within our control.
“Our availability is limited to the regularity of gas that we receive. The more irregular the gas supply, the less likely there will be electricity.” He noted that if the power generated at the station was not evacuated by the Transmission Company of Nigeria, it would be useless.
He added: “Unfortunately, as of today, technology has not allowed power of this size to be stored; so, we can’t keep it anywhere. So, invariably, we will have to switch off the plant and when we switch off the plant, we have to pay our workers irrespective of whether there is gas or transmission.
“Sadly, the plant is aging. So, this plant requires more nurturing and maintenance for it to remain readily available for Nigerians.
“Now, where you have exchange rate moves from N157/$1 during acquisition in 2013 to N502-N505/$1 in 2021, and the revenue profile is not in any way commensurate with that significant change, then we have a very serious problem.”
NBET budget
In an effort to address the debt, (NBET) budgeted N139 billion, 98% of its 2021 budget, to pay GenCos. This was contained in NBET’s 2021 budget. It stated: “The total budget of NBET this year is N142 billion.
Out of this, N139 billion is for paying generation companies. This is because the cumulative cost is yet to be recouped,” the financial document showed. “Being the 98% of the budget, this N139 billion is to manage the gap between what the DisCos are paying and what the GenCos are invoicing.”
