With the continued poor supply of power in Nigeria, the Electricity Generation Companies, GENCOs, have made a strong case for the injection of additional funds into the sector. In its proposal sent to the government, sighted by newsmen, the Association of Power Generation Companies, APGC, the companies highlighted the many challenges in the sector, including lack of liquidity and options to tackling them.
Specifically, the proposal signed by Dr. Joy Ogaji, the Executive Secretary, Association of Power Generation Companies, stated, “Expediting the process of payment of the outstanding balance due to GENCOS under the CBN N213bn Electricity Market Stabilization Facility.
“Payment of the outstanding for January 2015 (invoice unpaid with MO before (TEM), and outstanding/unpaid invoices from Feb 2015 to December, 2016 with accrued interests. Payment for available capacity for the period 2015 February to date and payment for deemed capacity for the period 2013 to date.” CBN Headquarters It stated, “Putting in place an effective financing plan to kick in upon the exhaustion of the N701bn payment assurance facility to sustain payments of invoices till 2021, when FG projects that the NESI would be self-sustaining.
“The importance of this cannot be over-emphasized as not having an effective financing plan in place would erode whatever gains that would be made when the above proposed solutions are implemented. “GENCOs further reiterate the necessity for effective payment security and guarantees on their exposure to the market.
The GENCOs make reference to the original intention of providing World Bank Partial Risk Guarantees supported by the Sovereign Guarantee of Nigeria at the inception of the power sector privatization exercise. “Effective payment security and sovereign guarantee is inevitable to stabilize the Nigerian Electricity Supply Industry (NESI), given (a) the current developmental stage of the electricity market; (b) the default rate of GENCOs in respect of their loan repayment obligations to their lenders. “Without such instruments and the required sovereign backing, it becomes impossible for any bank or financial institution to provide any funding or credit accommodation to any GENCO, yet there is an obvious need for substantial additional investments and funding to develop the NESI and put the electricity market on the right growth trajectory.
“The foregoing makes it explicit that the GENCOs are not threatening or constituting themselves as economic saboteurs via shutting down of their stations, but the forces of demand and supply imposed on them are making it inevitable for the units to shut down.” It added, “History has shown in the past three decades how generating plants were run right to the ground by the defunct National Electric Power Authority, NEPA, without the scheduled maintenance and overhaul. These new breed of determined operators have continued to maintain standards by increasing their national generation capacity without being paid rightly for their services.
“Technically, high frequency indicates high generation without commensurate demand (load), while high demand in the face of low generation results in low frequency. In a grid network playing host to numerous generators, there is need to control frequency swing to avoid adverse effect on different generators. “Regulators and policy makers are called upon to take drastic and decisive actions in arresting this situation as quickly as possible to ensure that normalcy returns as failure can affect the life expectancy for all appliances of customers connected to the Nigerian electrical grid.
“New and existing industry will choose other countries with more reliable and constant electrical power to settle, leading to loss of hundreds of thousands of jobs for Nigeria as well as loss of revenues (foreign exchange) for the country. “Operating outside of the safe zone for most part of the time increases the costs of maintenance and repairs. Given that maintenance costs and machine availability are two of the most important concerns to a heavy-duty gas turbine equipment owner, “Inspections, spare parts planning, and other major factors affecting component life and proper operation of the equipment as well as other station auxiliaries which require periodic servicing including the control devices, fuel-metering equipment, gas turbine auxiliaries, and load package will be increased significantly.
” It added, “The state of the sector finance and access is further corroborated by the Financial Stability Report of the Central Bank of Nigeria, of December 2016, which shows that loans to the power and energy sector accounted for 4.5 per cent of the gross loan portfolio of the nation banking system as credit to that sector has stood at N726.29bn.
“This led to the CBN directing the creditor banks to GENCOs to make provisions for power sector loans, whose performance are admittedly very poor (due to the inability of the GENCOs to service and repay loans and credit facilities foisted on them by the huge outstanding debts owed them), and the absence of effective payment security and guarantee.
The effect is GENCOs are under additional pressures and are exposed to the exercise of lenders’ right against bad debtors and the fallout of exercises. “The illiquid nature of the sector was further corroborated by the World Bank in its recent report which states that the highly leveraged balance sheets of sector operators had severely constrained their ability to access commercial financing.”