N600bn intervention: GenCos threatens to declare force majeure as NBET introduces 0.75% admin charge

THE umbrella body of the electricity generation companies (GenCos) has frowned against the introduction of 0.75 per cent administrative charge to their invoice by the Nigerian Bulk Electricity Trading plc (NBET)as a prerequisite to accessing the new Federal Government (FG) N600 billion intervention to the power sector.

The N600billion is a short term intervention to pay for energy generated and delivered and also aimed at resolving the issues faced by the Nigerian Electricity Supply Industry (NESI) sustainably.

The association’s Executive Secretary, Dr. Joy Ogaji made the disclosure at a briefing during the weekend in Abuja.

She said the development was issued via a letter dated September 13, to individual thermal plants, 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%.”

According to her, NBET had given the GenCos three working days ultimatum to respond with the board resolution or face non-payment of energy invoices.

While noting that NBET was a licensee of the Nigerian Electricity Regulatory Commission (NERC), she described the decision as unregulated.

“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 creditworthy off-taker created to incentivise private investment in power and act as the buffer to the GenCos.

“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,” she stated.

On the contrary, she stressed that under the principle of privity of contract Thermal GenCos have contractual obligations to pay their gas suppliers otherwise, this remains their burden.

Ogaji who described the move as “bullish” said using the this as a condition for accessing the fund especially on GenCos who are already convulsing, in the NESI is an aberration on the duty of care placed on NBET.

She said: “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.

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“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.”

While also reacting to NBET’s claims that thermal GenCos have not been making pro-rata payments for gas from monthly invoices paid by the market, she said: “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.”

However, she affirmed that NBET, in a meeting with the GenCos, had claimed that it was directed by the Presidency to take over the processing of gas payment on behalf of the GenCos.

That: “It had the 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.”

She warned that 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.”

In view of this, she stressed that the GenCos may be pushed to declare a force majeure.

“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,” she stated.

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