Chief Executive Officer of the APGC, Dr. Joy Ogaji
The Association of Power Generation Companies (APGC) has condemned the prevailing trend in the electricity market, saying it compounds the plights of Generation Companies (GenCos), frustrating, dis-incentivising and has caused the nation to remain static at grid generation of mere 4,000MW for many years.
The APGC which is the umbrella of GenCos lamented the abysmal payment structure for the GenCos, stressing that the GenCos are the worst treated in Nigerian Electricity Supply Industry (NESI) value chain and are operating at monumental losses.
In a detailed statement, the Chief Executive Officer of the APGC, Dr. Joy Ogaji, called on the Federal government for comprehensive resolution of the GenCos’ plights for the sector to move forward for overall socio-economic development of the country.
According to Dr. Ogaji, “The current practice of only recognizing called up capacity (power the discos and transmission can take) and ignoring capacity component made available, 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, and certainly reduces/erodes the Investors’ confidence in the Reforms and returns on investments as enshrined in the extant regulatory documents, including the MYTO.
“This practice also negates a key pillar of the Power Sector Recovery Program, 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, it can deflate the appetite or ability of investors to invest, with a detrimental long-term effect of decreasing power plant financing options. The Nigerian scenario represents an absurdity of sorts.
“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 (PPAs). This situation is a scary scenario for any investor, as no guarantee of any sort is in place to ensure any form of return on investments.
“The non-availability of the active PPAs has made it impossible to secure a gas supply agreement (GSA), as there is no backstop to support such agreements.
The economics behind this denial or ostracism in the same market where the same gas, similar O&M costs, etc., exists is indescribable.
“The lack of PPAs also means that the GenCos are exposed to the vagaries in the downstream in the electricity market: when the transmission company is unable to wheel power efficiently, load rejection occurs, resulting in idle generation capacity, and when the DisCos are unable to distribute available power efficiently, load rejection also occurs.
” A third exposure the GenCos face occurs when the DisCos are unable to efficiently collect revenue for energy distributed and sold and hence cannot make payments for energy taken.
The inability to enforce performance and efficiency towards optimal utilization will lead to all computations for a full return on investment thrown into chaos.
” Sanctity of contracts may continue to be a mirage in the power sector. Thus, the issue of security of supply is strongly dependent on how quickly the electricity market can debottleneck the constraints imposed by other critical stakeholders.
“The current market design, as envisaged, is not reflected adequately in the incentives and enforcement measures for performance. Electricity requires huge investments, recouped over very long periods. How can it operate on a voluntary basis?
“The reality is that GENCOs have not been receiving full payment
for the electricity supplied by them, while the gas suppliers have also not been receiving full payments for gas supplied to the GENCOs. This has accounted for the sub-optimal growth, inefficient operation and the current dire situation of the GENCOs, which has a huge negative impact on the entire power sector.
“The current state of the market, where a generation company is short-changed for the benefit of other market participant negates the tenets of the Multi-Year Tariff Order (MYTO), a tariff model for incentive-based regulation that seeks to reward performance above certain benchmarks, reduces technical and non-technical/commercial losses and leads to cost recovery and improved performance standards from all industry operators in the Nigerian Electricity Supply Industry.
“The foregoing goes to buttress the fact that GenCos’ outstanding amount, which is over ₦6.2 trillion, does not represent all their entitlement, contractually. These debts continue to accumulate because GenCos are not fully paid for their output, despite incurring high costs for gas supply, plant maintenance, foreign exchange exposure, and financing obligations.
“This persistent non-payment has rendered most GenCos technically insolvent and severely
constrained their ability to invest in capacity maintenance and expansion.
From the foregoing, the legacy GenCos and the NIPP plants in the market have been operating without adequate sector risk protection, hence exposed to various operational and regulatory risks. This singular reason has kept the sector at about 4,000 MW of average grid generation, for many years, notwithstanding an installed capacity of 15,500MW.”
Dr. Ogaji further contended that the GenCos are not beneficiaries of the current subsidy regime but are, in fact, its biggest victims.
She said: “GenCos are only requesting their receivables, which have accumulated over the years, as can be verified from the MYTO and NBET documents for power generated and consumed, but only 35% is paid, leaving a huge contagion that is not cash-backed since 2015 to date. “
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