Nigeria Electricity Supply Industry: GenCons opt for force majeure five years after privatization

WorldStage Newsonline (EXCLUSIVE)– Five years after the privatization of the Nigeria’s electricity assets by the Federal Government, there are strong indications that the generating companies (GenCos) have applied for force majeure following the difficulties they are facing to meet their Performance Agreement obligations with the Bureau of Public Enterprises (BPE).

Among the power generating companies which acquired the majority holdings in the defunct Power Holding Company of Nigeria (PHCN) include Afam Power Plc, Mainstream Energy Solutions Limited (MESL), Transcorp Power Limited, North South Power Limited, Cummins Cogeneration Limited, Sapele Power Plc, Egbin Power Plc and KEPCO Energy Resources Limited (KERL).

According to a performance report of the Nigeria Electricity Supply Industry (NESI) made available to the WorldStage, the GenCos could hardly survive with less than 35% remittances by the electricity distribution companies (DisCos) that consumed more than 90% of the power supplied to the grid.

“So in plain terms, every month GenCos are being owed an average 71.28% of their invoice,” the report indicated.

The report lamented that the N701 billion Payment Assurance Guarantee put in place by the Federal Government for two years (Jan 2017 – Dec 2018) in the hope that DisCos will improve on their remittance before its expiration had grossly failed, as remittances still fell below 35%.

Despite the unfavorable operating environment, the GenCos confirmed that there had been 75% increment in the Available Generation Capability amounting to about 3169.95MW from 4214.32MW  in 2013 to 7384.27MW in 2018.

“It can also be logically concluded that GenCos Available Generation Capability has doubled over this period. Thus, it can be said that GenCos have kept to their industry agreement with the BPE,” the report said.

With the considerable increase in power generation over the years, the report showed that the consumers did not feel the impact as the bulk of the output were stranded at 24.46% in 2013, 44.44% in 2014, 45.50% in 2015, 54.52% in 2016, 48.21% in 2017 and 47.67% in 2018.

 “Due to the fact that increased Available Generation Capability was not translated to corresponding increase in power supply to consumers, grid power is becoming less attractive and a threat to GenCos performance and Power purchase agreement obligations in the Nigeria Electricity Supply Industry,” the report said.

The GenCos have also seen a threat in the increasing off-grid deployment such as solar installations which is currently hampered only by its initial installation cost.

“If due to technological advancement there is a drop in the initial cost in the solar technology or other renewable energy solutions, grid power is in danger of becoming the alternative supply,” the report said.

Other issues facing the GenCos as highlighted in the report include; Unclear payment plans for the GENCOS after the expiration of the 701bn PAG, i.e. from January 2019; Unclear nature of the Power Sector Recovery Plan (PSRP); Free Governor Mode of Operation (FGMO) without adequate spinning reserve; Poor dispatch of GENCOS; Unclear status of VAT; Partial Implementation of Generation Dispatch Tool; Non Payment of Available/Deemed Capacity.

The report concluded that the Nigeria Electricity Supply Industry “is in a palpable state and the brunt is especially felt by the GenCos.

“The market situation is not only crippling the GenCos but also halting their desire to recover or expand capacity.”

It acknowledged that Nigeria is a very viable market, but that GenCos are being shortchanged as a preliminary review showed that “Gencos are losing billions of naira every month from actions of other market participants and government parties.“These identified losses must be dealt by the market through the leadership of the regulator, and captured in the books so that it can be signed off with an agreed payment date.”

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