What is the function of the Nigerian Bulk Electricity Trading company in relation to the Gencos?
Critical to the reform in the power sector and with the increasing need to drive private sector investment in the sector, the Federal Government established the Nigerian Bulk Electricity Trading Company as a public liability company.
The 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 power generating companies (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. The Gencos are above all odds keeping to the terms of their contract, which include generating power in anticipation of the 100 per cent payment promised in the Transition Electricity Market.
Is the 100 per cent payment promised in the TEM being met?
The Transition Electricity Market promise of 100 per cent Gencos 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 its 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 for and paid for. The Federal Government has once again stepped up and approved the sum of 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 sustainably.
When will you start accessing the fund?
To access this fund, again the Gencos are faced with bullish behaviour from an agency that is supposed to be an agent representing and protecting their interest. In previous situations, they (Gencos) were threatened and forced into signing various obnoxious agreements such as Security Trust Deed and Power Purchase Agreement activation 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 per cent. The letter gave each Genco three working days ultimatum to respond with the board resolution i.e. September 13 to 18, 2019 or face non-paymyent of energy invoices.
Is there any regulatory order from the regulator on this matter?
It should be noted that NBET like other market participants, is a licensee of NERC (Nigeria Electricity Regulatory Commission) 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 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 Gencos’ gas bill is between 50 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 six 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 nine per cent 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 per cent of its invoices and yet be expected to perform within the requirement of the performance and other relevant market agreements entered into.
Since NBET has already introduced the policy, will the Gencos make adjustments?
Given that a Genco requires 20 to 30 per cent 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 six per cent 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 per cent as administrative charges or cost on payment to gas suppliers.The said 0.75 per cent administrative charge is compulsory as it is a Condition Precedent for Gencos to access the N600bn the Federal Government has approved for immediate payment to gas suppliers and Gencos.
Will NBET be making so much through the implementation of its new policy?
Introducing an additional burden of 0.75 per cent 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, 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 approval.
NBET therefore needs to come out clean and make known where and when stakeholders’ meetings involving all parties such as the regulator, 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 if NBET is allowed to carry on with this for services that amount to nothing more than being a ‘delivery truck’, since the Market Operator does the major work of preparing invoices and settlement statement for NBET to pass same to the 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 per cent of the total market payments.
It (NBET) does not have the moral right to receive 100 per cent of its service charge from the Market Operator, 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 are those things the Gencos expect from the electricity bulk trader?
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 market 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.