GenCos Draw Battle Line Against NBET, Tasks It To Focus On Meeting Obligations

By CLEMENT NWOJI, Abuja

The electricity supply crisis in Nigeria has brought to the fore the prevailing unhealthy rivalries and blame games between the key players in the power sector.

The Nigeria Bulk Electricity Trading Plc. (NBET) and power Generation Companies (GenCos) under the aegis of Association of Power Generation Companies (APGC) are at each other’s neck over claims of indebtedness and counter claims of payments.

The APGC Executive Secretary, Dr. Joy Ogaji fired the first salvo claiming that debts of over N1 trillion owed to it by NBET for power generated has incapacitated most of the GenCos investors who had exhausted their line of borrowing windows. She also claimed that the frequent “start and stop” generation directives have knocked off most generation machines.

But NBET reacted faulting APGC’s claims disputed the figures quoted by the GenCos, saying only companies with active gas supply and transportation contracts were paid for unutilized capacity.

 The Head Corporate Communication, NBET, Henrietta Ighomrore explained that in the country only five power generation companies with active Gas Purchase Agreement were paid for unused capacity.
According to her, claims by Dr. Ogaji that the GenCos have the capacity to generate 9,000MW was not accurate as inspections by NBET have shown that the capacity does not exist.
 
However, in a counter reaction to NBET’s reaction, APGC stated as follows:

The Nigeria Bulk Electricity Trading Plc. (NBET), in a statement issued by the company on the 13th of March,2022 has amongst other claims stated that it makes payment to GenCos as at when due and has never defaulted on any payment cycle till date. It further claimed that the percentage payment made to GENCOS has continually been on the increase, with the 701.9 billion PAF payment which ensured a minimum of 80% of GenCos invoices for year 2018 and 2019, as well as the 2nd PAF of 600 billion that ensured an average of 95% payment of GenCos invoices for 2020.

As Power Generation Companies, we believe that their claim is devoid of the true picture of the realities of the Generation Companies in the NESI, and therefore, capable of misleading the numerous consumers and stakeholders who deserve to know the truth. This is because, a perusal of their response shows that NBET never said anything about their payment details, from 2015 till 2017. We also believe that NBET is deliberately redirecting the focus from its inability to carry out its obligations which has thrown the GenCos in a financial quagmire, by focusing its insistence on the payments from the PAF.

It is imperative to state that the PAF payments were never envisioned in the PPAs. However, due to the bulk trader’s inability to fulfill its payment obligations, the PAFs were introduced as interventions by the Federal Government. Nevertheless, these interventions neither fully settled (dual involve of capacity and energy) the GenCos’ invoices nor settled the historical debts.

NBET is very much aware that they are owing the GenCos huge sums of unpaid invoices on energy generated and consumed for the period 2016, 2017, 2018. This is in addition to other outstanding such as true ups, deemed capacity etc. GenCos have severally engaged NBET on what modalities it has in place to deal with the outstanding and they have said such will be handled by NERC through bond. It is therefore puzzling to hear NBET saying they are up to date with our payments and on another breath say that they have paid us 80%. The huge debt profile has so increased that even the PSRO from the World bank is now inadequate to deal and with no clear line of sight of alternatives.

At the commencement of the privatisation, as part of the takeover process and in line with the Government objectives, the legacy GenCos entered into various contractual agreements amongst which was the Power Purchase Agreement (PPA) with NBET. Under the terms of the PPA, the Private investor typically agrees on an exclusive basis, to make available to the offtaker (in the case of the Nigerian Electricity Supply Industry (NESI), NBET) the Power Plant’s contracted generating capacity. The PPA is essential to the bankability of any power plant in the NESI. The typical revenue for a power project is payments received from the buyer under the PPA. Without adhering the payment terms under the PPA, it is impossible for the project to repay its lenders or acquisition loans on a timely basis and keep the plant functional.

The PPA which clearly delineates the terms of the business relationship and expectations of the parties, assured the GenCos of 100% payment of their monthly market invoice upon fulfillment of their obligations. Also, where NBET fails in this obligation, it is obligated to pay interest on any outstanding amounts. It was upon these premises, that the GenCos’ investors, invested heavily in the generation assets, going as far as obtaining loans to fulfil their obligations.

Again, It was further agreed under clause 13.4.1 of the Agreement that:
“for each billing period during the delivery term, seller shall invoice buyer for the capacity payment, energy payment, take or pay payment, and start-up cost payable to seller for such billing period upon recent of the final settlement statement from the market operator following the applicable billing period. The payment shown in such invoice as due to seller shall be paid by buyer on or before the fifteenth (15th) business day following the day the invoice is delivered to sector whether buyer disputes the invoiced amount”.

“Buyer at all times during the Delivery term provide a letter of credit from an Acceptable Commercial Bank and maintain other credit support arrangement subject to the terms of the World Bank partial risk guarantee; and Ensure that all proceeds from such payment security arrangements as the Distribution Companies may have entered into for Buyer’s benefit shall be available on a pro-rata basis to meet Buyer’s obligations to Sellers of electric power to Buyer (including but not limited to Seller)”

NBET has also claimed that on the issue of capacity payments that only GenCos with active PPAs get full capacity payment based on their active gas contracts. What it failed to disclose is that even though the PPA is active vide the PPA Activation agreement executed by majority of the GenCos; it has failed to be bound by the terms of this provision. The breach on the part of NBET by the chronic and persistent shortfalls in payments has resulted in a dispute between both parties. Even in the placeholder called security trust deed (STD), there is no provision in the STD that excludes NBET from performing its obligations under Clause 12 of the PPA as NBET remains the primary obligor.

Contrary to NBET’s payment claim, one thing is certain, NBET cannot rightly claim that the GenCos are recovering over 80% invoice settlement since 2018. It is imperative to state that even the GenCos with “active PPA’s” cannot boast of such efficient payment. The claims of NBET have a way of destroying the market by deceiving the government to believe that all is going on well when in fact there is a serious rot.

Under the PPA, there are Buyers (NBET) and Sellers (GenCos) CPs, Sellers covenants and Buyer’s security cover were not met even after the transfer of assets to the new investors thanks to NBET’s inability to meet them. The non-availability of these requirements resulted in the non-effectiveness of the PPA of the legacy GenCos. NBET should be bold enough to admit its inability to meet its obligation so the FGN can design relevant instruments to salvage the system. It is a pity that NBET will term the legacy GenCos PPA as ineffective when the CPs for the contract to be effective are within NBET’s purview.

This therefore raises a key question: Has NBET ever fulfilled its 100% payment obligation to the GenCos? How does NBET expect the GenCos to make their PPA’s effective? What makes a PPA effective? What is the role of the PPA activation agreement and Security trust deed? Are they placeholders or smokescreen? It claimed that it has never defaulted in its payment cycle, interesting. However, as lawyers will say, he who comes to equity must come with clean hands, NBET please publish your evidence of full payment as former management did on the company website.

NBET has over the years applied several tactics as a way of abdicating from its responsibility, unilaterally decided to pay for energy only thereby defaulting on the original terms of the contract. The Nigeria Bulk Electricity Trading (NBET) revealed that between September 2016 and December 2017, NBET migrated to the issuance of ‘’Energy-only Power Purchase Agreements”, ensuring that future power purchase contracts should be based on the payment of actual electricity energy delivered. At first sight, this can be perceived as doing more to good towards reducing the cost of electricity supply to end-users. However, the issue requires more forensic analysis to unravel the potential ramifications of NBETs action to ensuring security of supply, upholding the sanctity of contracts, and promoting future investments in the sector. NBET is free to change its rules but can only do that with future investors not by altering the positions of investors who are already in the market.

The current practice of using energy wheeled to work-back the generation capacity that generated that energy and using same to represent available capacity is an aberration. This practice of variabilizing generation capacity is punitive on GenCos as it discountenances idle capacity and serves as an incentive on non-performance for other sector players.
The GenCos have painstakingly kept to the terms of their contract and as it is well known, in a bilateral arrangement, one party cannot unilaterally change the terms of the game. This is because the GenCos worked with Available Capacity as the basis for determining capacity payments. These were representations made both in words and documentation and which also informed the respective financial models developed and upon which their decisions to invest in the generation companies were based. The Performance Agreement and indeed other Industry Agreements attest to this.

Having altered our positions to our detriment by placing heavy reliance on these representations and subsisting binding agreements, including but not limited to acquisition finance borrowings, O&M and other significant exposures, because of these foundational platforms which implies that the same state of things which we were told existed before, no longer exists, after we had commenced performance.

The implication is huge and sounded the death knell for the power generating companies (licensees) from 2015 till date. A situation where the energy dispatched is used as an index for power generation capacity subjects the GenCos to double jeopardy and has extremely been prejudicial to their interest and survival.
The indebtedness of the bulk trader to GenCos as well as the misalignment of receivable and payable days, has aggravated the liquidity challenge faced by the generation companies and underscored the need for working capital loan for most of them. Furthermore, the GenCos are operating under very harsh monetary and fiscal conditions, occasioned by the economic realities that face the country today. Consequently, the GenCos are unable to meet their gas obligations which accounts for the shutdown of gas supply to the thermal GenCos without payment.

A preliminary review shows that GenCos are losing billions of naira every month from actions of other market participants and government parties. Idle generation represents capital investment not able to yield revenue that will hence impact the ability of the GenCos to support efficient operations and service loans used in developing the power plants. The central focus of a generation investor’s expectation is that the capacity will be optimally utilized to ensure the realization of calculated/expected returns on investments.

IT IS ADVISABLE FOR NBET TO STOP LIVING IN DENIAL AND PLAY ITS ROLE AS THE BUFFER, OBLIGOR & CREDITWORTHY OFFTAKER AND NOT TO CONTINUE THE ACCUMULATION OF LIABILITY.