Nigeria's power sector is facing a severe crisis as electricity generation companies (GenCos) warn of an imminent shutdown due to a staggering N4 trillion debt owed by the Nigerian government. This debt, accumulated from electricity generated and supplied to the national grid, comprises N2 trillion for 2024 and N1.9 trillion in legacy debts, placing immense strain on the GenCos' operations.

The Association of Power Generation Companies (APGC), led by Board of Trustees Chairman Sani Bello, has voiced serious concerns about the debilitating impact of this debt on their ability to meet financial obligations and sustain power generation. The Minister of Power, Adebayo Adelabu, had previously acknowledged the crippling effect of this debt burden on both GenCos and distribution companies (DisCos), hindering their optimal performance.

GenCos are grappling with a severe cash liquidity crisis that undermines the entire electricity value chain. Expectations of financial relief through external support, such as the World Bank's Power Sector Recovery Program (PSRP), have been dashed due to the inability of other market participants to meet their distribution-linked indicators (DLIs). Furthermore, the GenCos are plagued by difficulties in accessing foreign exchange, which is crucial for dollarized operation and maintenance needs. The absence of a specialized window or stable dollar allocation mechanism exacerbates these challenges.

The GenCos are advocating for a coordinated approach by all stakeholders within the Nigerian Electric Supply Industry (NESI) to address the liquidity issue realistically and sustainably, ensuring reliable electricity supply for Nigerians. They are requesting immediate and expedited action to avert potential national security challenges that could arise from their inability to maintain steady electricity generation.

The current collection rate has plummeted below 30% for 2024, with bleak prospects for 2025, severely impacting GenCos' ability to meet financial obligations. High corporate income tax, concession fees, royalty charges, and new Financial Reporting Council (FRC) compliance obligations further deplete their revenue.

The allocated N900 billion in the 2025 government budget raises concerns about its adequacy to cover arrears and future payments. Despite the full consumption of power generated by GenCos, corresponding full payments are not being made. The partial activation of contracts in NESI, minimum remittance orders, bilateral market declarations, and waterfall arrangements have failed to provide adequate relief. The risks of inflation, forex volatility without a dedicated window, and the supplementary Multi-Year Tariff Order (MYTO) order, which leaves a significant portion of GenCos' monthly invoices unmet, further compound the situation.

The GenCos' liquidity challenges are exacerbated by policies such as the payment waterfall in NESI, which prioritizes payments to other service providers over GenCos. This arrangement deviates from the Power Purchase Agreements (PPAs) between GenCos and the Nigeria Bulk Electricity Trading Plc (NBET), where NBET is obligated to purchase available capacity as agreed.

To address these critical issues, GenCos are demanding the following:

• Immediate implementation of payment plans to settle all outstanding invoices.
• Reprioritization of payments under the waterfall arrangement to ensure full and timely payment of GenCos' invoices.
• A clear financing plan to backstop exposures in NERC's Supplementary Order to the MYTO and the DRO 2024.
• Provision of payment security (guarantees) backed by the World Bank/AFDB to ensure full payment, enabling GenCos to meet critical needs, improve generation, and implement expansion plans.
• Greater transparency in the billing, collection, and remittance process of sector funds.
• Investor-focused and economy-growth-friendly policies and regulations to incentivize investors.
• Firm monitoring and implementation of the liberalization of the market (bilateral arrangement) to create market confidence and ensure the viability and creditworthiness of the power sector.
• Full effectiveness of all market agreements, firm monitoring, and enforcement of rules by the regulator on all market participants.

The GenCos emphasize the urgency of addressing the liquidity challenge to sustain power generation and prevent a collapse of the power sector. They also highlight the harsh monetary and fiscal conditions under which they operate, stemming from the prevailing economic realities. Resolving the flow of money within the power industry is crucial for ensuring continued and sustainable improvement in electricity supply for Nigerians.

In a related development, Emmanuel Addeh and Peter Uzoho reported that GenCos are also seeking a special FX window for the procurement of spare parts and other essential components. They lamented that less than 30% of the total invoice is received monthly.

Col. Sani Bello (rtd.), Chairman, Board of Trustees (BoT) of Power Generation Companies, further emphasized that the backlog owed to them are in two folds: N2 trillion owed in 2024 and N1.9 trillion in legacy debts. Although, N205 billion was said to have been paid by the federal government in August 2024, the Gencos still maintain that they bear the brunt of the liquidity crisis in the Nigerian Electric Supply Industry (NESI).