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Gencos Threaten to Hands off Power Plants over Payment Plan

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Gencos Threaten to Hands off Power Plants over Payment Plan

Gencos Threaten to Hands off Power Plants over Payment Plan
September 23
11:05 2019

Power generation companies (Gencos) yesterday signified their intention to declare force majeure on their operations, saying they were being unfairly treated by the Nigerian Bulk Electricity Trading Company Plc (NBET).

The Gencos said in a statement that they would be forced to return the power generation plants to the federal government and relieve their investors of the obligation of generating electricity for Nigeria because NBET was making it difficult for them to operate.

The Executive Secretary of the trade association of the Gencos– the Association of Power Generation Companies (APGC), Dr. Joy Ogaji, said the NBET was making demands on the Gencos which she claimed were unfair.

Ogaji, said the NBET claimed the Gencos were not making pro-rata payments to their gas suppliers and in that regards decided to pay the gas suppliers by itself but with a 0.75 per cent administrative charge.

According to Ogaji, the development would impact the operations of the Gencos negatively as they would have no funds to run their plants.

“The NBET on September 13, 2019 issued a letter to individual thermal Gencos directing them to obtain, as a matter of urgency, their respective board approvals or resolutions, bequeathing responsibility for payment of gas and transportation to the respective supply companies for an administrative charge of 0.75 per cent.

“The letter gave each Genco three working days ultimatum to respond with the board resolution or face non-payment of energy invoices,” said Ogaji.

She also said the Gencos were contesting the decision because the NBET did not have the approval of the Nigerian Electricity Regulatory Commission (NERC) to make such decisions.

“The fact that NBET is placing the extortionist 0.75 per cent administrative charge on Gencos who are already convulsing in the NESI is an aberration on the duty of care placed on NBET.

“In addition, going by the principle of privity of contracts, thermal Gencos have contractual obligations to pay their gas suppliers. If they do not pay, that burden remains with them.

 “NBET claims that thermal Gencos have not been making pro-rata payments for gas from monthly invoices paid by the market. For example, from the paltry 15 per cent of the June 2019 energy invoice paid to each Genco, NBET expects each thermal Genco to make pro-rata payments of 15 per cent of the gas invoice to gas suppliers and transporters.

“Given that a thermal Genco’s gas bill is between 50 per cent and 70 per cent of their total monthly revenue, depending on their efficiency and tariff, the implications of carrying out NBET’s directive of pro-rata payments is that a thermal Genco with about 60 per cent of its total revenue as gas cost, will be left with about 6 per cent of such total energy invoice to operate the power plant. This is because of the 15 per cent received from the market, about 9 per cent must be allocated to gas as pro-rata payment. This is certainly not sustainable,” she added.

According to her, each of the Gencos requires between 20 and 30 per cent of its total revenue to meet its direct operating cost on a monthly basis and that if NBETs directive on pro-rata payments is carried out, only six per cent of the monthly invoice would be left for them. This, she stated was not enough to pay Gencos’ staff alone.

“The said 0.75 per cent administrative charge is compulsory as it is a Condition Precedent (CP) for Gencos to access the N600 billion the federal government has approved for immediate payment to gas suppliers and Gencos.

“If NBET gets its way in executing its planned action, it will set in motion a significant precedent that any entity can take up the role of a regulator in the NESI, giving directive without the relevant stakeholder engagement and regulatory (NERC) approval.

“It is unfathomable that any ongoing concern gets paid only 15 per cent of its invoices and yet expected to perform within the requirement of the performance and other relevant market agreements entered into. The time may just be right for Gencos to declare force majeure and release themselves of all market obligations. Surely, gencos will remain blameless for taking such actions,” Ogaji stated.

Efforts by THISDAY to reach the Chief Executive of NBET, Dr. Marilyn Amobi, proved abortive because her mobile phone was switched off as at press time yesterday.

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