- The Nigerian Electricity Regulatory Commission (NERC) revealed that power generation companies have received less than 40% of their 2024 invoices despite continuing to supply full power output.
- GenCos face a severe liquidity crisis, with only 10% of their monthly invoices paid, threatening the stability of the country’s electricity sector.
The Nigerian Electricity Regulatory Commission (NERC) has acknowledged that power generation companies (GenCos) in the country have received less than 40 per cent of their invoices for 2024 so far.
Yusuf Ali, NERC’s commissioner for planning, research, and strategy, made the admission at the 15th edition of PwC’s Annual Power and Utilities Roundtable in Lagos, held recently. Despite this shortfall, Ali praised the GenCos for continuing to supply power to the country. “There has not been a month this year where they’ve received up to 40 per cent of their invoices,” Ali stated. “Yet, they continue to provide 100 per cent of their output.”
This admission highlights the severe financial difficulties faced by the GenCos. In June, they warned that their operations were at risk of collapse due to a staggering N2 trillion debt and a projected funding shortfall of N1.7 trillion, as detailed in the 2024 Multi-Year Tariff Order.
Sani Bello, chairman of the GenCos’ Board, noted that the companies were only receiving about 10 per cent of the payments due to them each month, further exacerbating their financial challenges.
Bello emphasised that the most critical issue for GenCos is cash liquidity, severely limiting their ability to meet financial obligations. This poses a significant threat to the stability of the entire electricity value chain.
He explained that despite these financial constraints, the GenCos have upheld their contractual obligations by increasing capacity, though systemic issues have hindered this. “The power generated by GenCos has continued to be consumed fully, but with little corresponding payment, despite the Partial Activation of Contracts in the Nigerian Electricity Supply Industry (NESI) that began in July 2022,” Bello stated.
He also pointed out that various regulatory measures, including the minimum remittance order and the waterfall arrangement, have not resolved the liquidity crisis. As a result, 90 per cent of GenCos’ monthly invoices remain unpaid, and the lack of a solid financial plan or securitisation exacerbates the situation.
This large outstanding debt prevents GenCos from meeting its obligations to lenders, maintaining operations, purchasing necessary spare parts, and fulfilling employee-related commitments.
Bello expressed disappointment over the limited support from external entities like the World Bank’s Power Sector Recovery Operation, which has been hindered by the failure of other market participants to meet their commitments under the Power Sector Recovery Program.
NERC also acknowledged that the NESI’s current framework for bulk energy procurement is inadequate. The absence of effective contracts has led to a lack of market discipline and insufficient revenue assurance for GenCos, undermining their ability to maintain and sustain capacity.
Natural gas supply, which accounts for 80% of the country’s installed generation capacity, remains uncertain without firm contracts. As a result, much of the country’s generation capacity, estimated at 5 gigawatts (GW), is effectively stranded due to these unresolved issues.