Gencos counters NBET over purchase agreements, list N1.64tn debts

Agency Report
Agency Report

Power generation companies on Sunday said the Nigerian market was under threat based on the recent claims by the Nigerian Bulk Electricity Trading Company Plc that only five Gencos had active Power Purchase Agreements in Nigeria.

Speaking under the aegis of the Association of Power Generation Companies, the Gencos faulted the claims by NBET, as the APGC stressed that the statement of the bulk trader would further scare investors from investing in the sector.

The Executive Secretary, APGC, Dr. Joy Ogaji, who disclosed this to journalists in Abuja, explained that the absence of PPAs as claimed by NBET entailed that Gencos were exposed to the vagaries in the downstream electricity market

She said, “The fact that NBET claims that they have only five active PPAs entails that most of the power plants do not have Power Purchase Agreements.

“This situation is a scary scenario for any investor, as no guarantee of any sort is in place to assure any form of return on investments.”

Ogaji, however, disclaimed reports that quoted the Gencos to have insisted that the Federal Government must pay the over N1.6tn that was owed power generation companies since 2013, otherwise there would be total blackout across the country.

Rather, she explained that a situation where the energy dispatched by the power generators was used as an index for power generation capacity was detrimental to the survival of Gencos.

Speaking on the negative implication of the debt situation, she said, “We are currently owed N1.644tn. One of the reasons that the power plants are down is due to inefficient management of the grid.”

Ogaji further stated that power generation companies had exhausted all their borrowing sources, adding that the Central Bank of Nigeria had reportedly warned Deposit Money Banks to desist from lending money to Gencos.

The APGC executive secretary said, “If you give us gas, provide forex (foreign exchange) to carry out maintenance. I have told you that most of the units are down and they need money to fix them.

“Give us enough money to pay our gas suppliers because it is pre-payment. But for power, it is take and pay later. There is no way that this misalignment will help us.”

Emphasising the key role of PPAs in ensuring stability in the power sector, Ogaji said the assumption that Gencos were asking to be paid for electricity generation capacity instead of the actual power consumption was unethical.

Many Nigerians, she said, had asked endless questions on why they were paying capacity charges for power they did not consume.

“We have thought it wise to explain to Nigerians in a way it will be understood,” she stated.

Ogaji added, “Capacity charges are fees you pay to ensure that the electricity you might use is there for you when you need to use it.

“Capacity payments are global norms in the electricity supply industry and play critical roles in enabling the Gencos to optimise their power generation capacities, making such capacities available when called upon.

“In every Power Purchase Agreement, nominated capacity, metered energy, and deemed capacity are among the must-occur events.”

She stated that a typical Genco would make its day-ahead declaration of how much it would generate (available capacity) for a given date and the System Operator would nominate the capacity it could dispatch/transmit.

“In every electricity market, this nominated capacity is paid for and with consideration for the suppressed capacity as prompted by System Operator’s instructions,” Ogaji stated.

She added, “A reasonable return on capital invested in the business is a critical incentive for continued improvement in technical capacity as well as quality of service.

“Therefore, capacity payment forms a critical factor to investments, especially in servicing the debts and equity component of the costs involved.

“This fact is further corroborated in the Power Purchase Agreements, which generally set it at a level designed to recover fixed and long-term variable costs such as debt service, fixed operations and maintenance costs and other fixed costs/charges and equity return.”

The Gencos spokesperson stated that given the gestation period for a typical power plant to come on stream, if capacity payment was not made it would be difficult to make the plant available when called upon.

“The current practice of ignoring the capacity component presents a wrong signal to international and local investors, shatters/negates the aim of the reform, and prejudices the Gencos ability to meet financial ratios imposed by the lenders,” Ogaji stated.

She continued, “It certainly reduces/erodes the investors’ confidence in the reforms and returns.

“This practice also negates a key pillar of the Power Sector Recovery Programme approved by the Federal Executive Council, which seeks to establish a contract-based electricity market as it restricts and undermines the robustness of the electricity market.”

In addition, Ogaji stated that it could deflate the appetite or ability of investors to invest, with detrimental long-term effects of decreasing power plant financing options.

“The Nigerian scenario represents an absurdity of sorts,” she stated.

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