Critical to the reform in the power sector and with the increasing need to drive private sector investment in the sector, the Federal Government (FGN) established the Nigerian Bulk Electricity Trading Plc (NBET) as a public liability company. NBET, the GenCos were informed, is a credit worthy off taker created to incentivise private investment in power and act as the buffer to the GenCos.

With this renewed confidence for investors and the promise to provide incentives, and the needed comfort by bearing the off-take market and default risks such as liquidity/payment risks, the GenCos with a strong patriotic zeal invested in the power sector and are above all odds keeping to the terms of their contract: generating power in anticipation of the 100% payment promised in the Transition Electricity Market (TEM).

The TEM promise of 100% GenCo invoice settlement by NBET failed, placing a big financial burden on the GenCos. The promise provoked some additional investments by GenCos with its attendant high cost of capital leading to increased debt profile. The GenCos were made to bear the brunt of this lack-lustre performance on the part of NBET.

The Federal Government in their magnanimity, intervened to ameliorate the plight of the GenCos by introducing various instruments to partially pay GenCos for energy delivered, while capacity not utilised but made available is yet to be accounted and paid for.

The FGN has once again stepped up and approved the sum of Six Hundred Billion Naira (N600bn) as a short term intervention to pay for energy generated and delivered, while it resolves the issues faced by the Nigerian Electricity Supply Industry (NESI) sustainably.

To access this fund, again, GenCos are faced with bullish behaviour from an agency that is supposed to be an agent representing/protecting their interest. In previous situations, they were threatened and forced into sign various obnoxious agreements (Security Trust Deed and PPA Activation agreements or such documents) before they were paid for power generated and consumed.

As if that was not enough, NBET is at it again, this time mandatorily issuing an arbitrary and unilateral decision, which should not be possible for a market licensee.

NBET, on 13th September, 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%.

The letter gave each GenCo three (3) working days ultimatum to respond with the board resolution i.e. September 13 to 18, 2019 or face non-payment of energy invoices.

It should be noted that NBET like other market participants, is a licensee of NERC, and as such is expected to understand that in a regulated market, every expense/cost must be backed by regulatory approval for effective computation of the market tariffs.
The generation companies are not aware that such approvals have been issued by NERC nor is there any policy directive to this effect.

The fact that NBET is placing the extortionist 0.75% “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% of the June 2019 energy invoice paid to each GenCo, NBET expects each Thermal GenCo to make pro-rata payments of 15% of the gas invoice to gas suppliers and transporters. Given that a Thermal GenCos’s gas bill is between 50% and 70% 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% of its total revenue as gas cost, will be left with about 6% [15% – (0.6*15%)] of such total energy invoice to operate the power plant! This is because of the 15% received from the market, about 9% must be allocated to gas as pro-rata payment.

This is certainly not sustainable as it is unfathomable that any going concern gets paid only 15% of its invoices and yet be expected to perform within the requirement of the performance and other relevant market agreements entered into.
Given that a GenCo requires 20% to 30% of its total revenue to meet the direct operating cost of keeping the plants running on a monthly basis, gas exclusive, if NBET’s directive on pro-rata payments is carried out, the 6% that will be left for the GenCos cannot even cater for staff costs, not to talk of having the resources to procure basic spare parts that the machines require to keep them in operation.

It is curious to note that during a face- to-face meeting between NBET management and the GenCos, NBET claimed that:

It was directed by the Presidency to take over the processing of gas payment on behalf of the GenCos

It had approval to apply 0.75% as administrative charges or cost on payment to gas suppliers.

The said 0.75% administrative charge is compulsory as it is a Condition Precedent (CP) for GenCos to access the N600bn the Federal Government has approved for immediate payment to gas suppliers and GenCos.

Introducing an additional burden of 0.75% to GenCos gas invoices payments implies that NBET is looking to rake in a windfall of not less than N2.7bn as its administrative fees for a service of only collating and submitting invoices to the Central Bank of Nigeria (CBN), who in effect makes the payment to GenCos and the gas parties.

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 relevant stakeholder engagement and regulatory (NERC) approval.

NBET therefore needs to come out clean and make known where and when stakeholders’ meetings involving all parties such as the Regulator (NERC), NBET, Gas suppliers and GenCos held to discuss and explore the intricacies of such multi-party transaction before issuing such a directive.

The GenCos are worried that if NBET is allowed to carry on with this shenanigan for services that amount to nothing more than being a “delivery truck”, since the Market Operator (MO) does the major work of preparing invoices and settlement statement for NBET to pass same to CBN for payment. It should also be noted that NBET, acting only as a “conveyor belt” or “agent” of GenCos funds, is currently paid 2.5% of the total market payments.

NBET does not have the moral right to receive 100% of its service charge from the Market Operator (MO) while it does virtually nothing to enable GenCos receive their invoices in full. Probably, the monthly payment gap of GenCos market invoice is an incentive for NBET’s continued stay in the market to adjudicate any government intervention facility.

What is expected of NBET as the Obligor for the GenCos, is to come up with viable strategies to make the GenCos WHOLE and not to create a gaping HOLE in their limited finances.

If the relationship between the GenCos and other markets participants and agencies of government which is progressively becoming a master-slave or master-servant relationship is not addressed quickly, the time may just be right for GenCos to declare force majeure and release themselves of all market obligations, for which we (GenCos) cannot be held accountable.

With this renewed confidence for investors and the promise to provide incentives and the needed comfort by bearing the off-take market and default risks such as liquidity/payment risks, the GenCos invested in the power sector and are above all odds keeping to the terms of their contract, generating power in anticipation of the 100% payment promised in the Transition Electricity Market (TEM). The promise provoked some additional investments by GenCos with its attendant high cost of capital leading to increased debt profile.

The TEM Promise of 100% GenCo invoice settlement by NBET failed, placing a big financial burden on the GenCos. The GenCos were made to bear the brunt of this lack-lustre performance on the part of NBET.

The Federal government in their magnanimity, intervened to ameliorate the plight of the GenCos by introducing various instruments to partially pay GenCos for energy delivered while capacities not utilised but made available was unaccounted for.

The Federal Government has once again stepped up and approved the sum of Six Hundred Billion Naira (N600bn) as a short term intervention to pay for energy generated and delivered while it resolves the issues faced by other critical players in the Nigerian Electricity Supply Industry (NESI). To assess this fund, again, GenCos are faced with a bullish behaviour from an agency that is supposed to be representing/protecting their interest. In previous situations, they were threatened to sign various obnoxious agreements (Security Trust Deed and PPA Activation agreements or such documents) before they are paid.

As if that was not enough, NBET is at it again, this time mandatorily issuing arbitrary and unilateral decision, which should not be possible for a market licensee.

NBET, on 13th September 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%.

The letter gave each GenCo three (3) working days ultimatum to respond with the board resolution i.e. September 18, 2019 or face non-payment of energy invoices. It should be noted that NBET like other market participants, is a licensee of NERC and as such is expected to understand that in a regulated market, every expense/cost must be backed by a regulatory approval for effective computation of the market tariffs

The generation companies are not aware that such approvals have been issued by NERC nor is there any policy directive to this effect.

The fact that NBET is placing the extortionist 0.75% “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% of the June 2019 energy invoice paid to each GenCo, NBET expects each Thermal GenCo to make pro-rata payments of 15% of the gas invoice to gas suppliers and transporters. Given that a Thermal GenCos’s gas bill is between 50% and 70% 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% of its total revenue as gas cost, will be left with about 6% [15% – (0.6*15%)] of such total energy invoice to operate the power plant! This is because of the 15% received from the market, about 9% must be allocated to gas as pro-rata payment.

This is certainly not sustainable.

Given that a GenCo requires 20% to 30% of its total revenue to meet the direct operating cost of keeping the plants running on a monthly basis, gas exclusive. If NBETs directive on pro-rata payments is carried out, the 6% that will be left for the GenCos cannot even cater for staff cost not to talk of having the resource to procure basic spare parts that the machines require to keep them in operation.

It is curious to note that during a face to face meeting between NBET management and the GenCos, NBET claimed that:It was directed by the Presidency to take over the processing of gas payment on behalf of the GenCos.

It had approval to apply 0.75% as administrative charges or cost on payment to gas suppliers.

The said 0.75% administrative charge is compulsory as it is a Condition Precedent (CP) for GenCos to access the N600bn the Federal Government has approved for immediate payment to gas suppliers and GenCos.

NBET therefore needs to come out clean and make known where and when a stakeholders meeting, involving all parties such as the Regulator (NERC), NBET, Gas suppliers and GenCos held to discuss and explore the intricacies of such multi-party transaction before issuing such a directive. Introducing an additional burden of 0.75% to GenCos gas invoices payments implies that NBET is looking to rake in a windfall of not less than N2.7bn as its administrative fees for a service of only collating and submitting invoices to the Central Bank of Nigeria (CBN) who in effect makes the payment to GenCos and the gas parties.

The GenCos are worried that, if NBET is allowed to carry on with this shenanigan, for services that is nothing more than being a “delivery truck” since Market Operator (MO) does the major work of preparing the invoices and settlement statement for NBET to pass same to CBN for payment. It should also be noted that NBET, acting only as a “conveyor belt” or “agent” of GenCos funds, is currently paid 2.5% of the total market payments.

NBET does not have the moral right to receive 100% of its service charge from the Market Operator (MO) while it does virtually nothing to enable GenCos receive their invoices in full. Probably the monthly payment gap of GenCos market invoice is an incentive for NBET’s continued stay in the market to adjudicate any government intervention facility.

What is expected of NBET, as the Obligor for the GenCos is to come up with viable strategies to make the GenCos WHOLE and not to be creating a gaping HOLE in their limited finances.

We will be strongly recommending to the government and other key stakeholders that the administration of the GenCos finances reverts back to the Market Operator (MO) while NBET focuses on engagements with new entrants or intending power project developers.

In addition, 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.

Unfortunately, as it stands, the relationship between the GenCos and other markets participants and agencies of government is progressively becoming a master-slave or master-servant relationship. GenCos being the slaves or servants.

It is unfathomable that any ongoing concern gets paid only 15% 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.