The Nigerian power generation companies (GenCos) have sounded the alarm over severe cash troubles threatening the stability of the country’s electricity market.
In a statement issued by their board Chairman, Col. Sani Bello (retd), on Sunday, GenCos highlighted the critical issue of cash liquidity, which has significantly impaired their ability to fulfil obligations and maintain the electricity value chain.
“Of all the crises facing the sector, cash liquidity is the most pressing, reducing our ability to continue performing our obligations and threatening to completely undermine the electricity value chain,” Bello stated.
Despite facing severe difficulties since their takeover in 2013, the GenCos have adhered to their contractual agreements by increasing capacity, although systemic constraints have hampered these efforts.
“Notwithstanding these challenges, we have kept to the terms of our contracts, ramping up capacity which has largely suffered due to systemic constraints,” Bello emphasized.
The GenCos have made substantial investments and remained committed to their contracts over the past decade.
“As responsible investors, we have made large-scale investments with patriotic zeal, demonstrating our commitment by ramping capacities despite system constraints, unfriendly policies and regulations, increasing debts owed by the Federal Government without a clear financing plan, and a market devoid of guarantees,” Bello explained.
He added that the power generated by the GenCos continues to be consumed fully, yet payments remain insufficient.
“Despite the commencement of the Partial Activation of Contracts in the Nigerian Electricity Supply Industry (NESI) from July 1, 2022, the minimum remittance order, bilateral market declaration, and waterfall arrangement, we face risks such as inflation and forex volatility without a dedicated window to cushion the forex impact,” he noted.
The GenCos are currently owed over N2 trillion for power they generated and delivered to the national grid, consumed by end users.
This debt, along with the over N1.7 trillion funding gap created by the recent supplementary Multi-Year Tariff Order (MYTO) 2024, has had a crippling effect on their operations.
“This huge debt outlay is greatly inhibiting our ability to meet obligations to lenders, operations and maintenance, necessary maintenance, spare parts procurements, and employee-related obligations,” Bello stated.
The GenCos had hoped for external financial support through initiatives such as the World Bank Power Sector Recovery Operation (PSRO).
However, these expectations have been dampened due to other market participants’ failure to meet distribution-linked indicators (DLIs) enshrined in the Power Sector Recovery Program (PSRP).
“The inability of other market participants to meet their respective DLIs has dampened our expectations of being settled through external support like the World Bank PSRO,” Bello lamented.
This financial strain on GenCos has significant implications for the entire power value chain.
“The situation has dire consequences for the GenCos and, by extension, the entire power value chain,” Bello warned. The liquidity crisis not only threatens the sustainability of GenCos but also impacts the broader electricity market, potentially leading to widespread power outages and further economic challenges for Nigeria.
The GenCos are calling for immediate action to resolve the liquidity challenges and ensure the stability of the power sector.
“We urge the government and relevant stakeholders to prioritize the resolution of these issues to safeguard the future of Nigeria’s electricity market,” Bello concluded.
