GenCos threaten force majeure if new electricity tariffs are delayed

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Electricity generation companies (GenCos) say they will declare a force majeure and down tools if the Federal Government goes ahead to delay the commencement of the new service tariff plan billed to start July 1.

Joy Ogaji, executive secretary of the Association of Power Generation Companies (APGC) in a phone interview, threatened that the operators who are owed considerable sums of money, would drag the Federal Government to an arbitration court in the UK over the matter.

According to the GenCos, “the DisCos have been arguing that they are not able to take more power because the tariff is not cost-reflective, how come now that a cost reflective tariff has been approved, and it will become effective tomorrow, the same DisCos ran to the national assembly and start lobbying for it to be postponed.”

Representatives of the DisCos rushed to Abuja in private jets Monday and lobbied the the leadership of the national assembly to postpone the new tariff, saying the DisCos were not ready for its implementation and that the timing of the increase during a pandemic, will adversely affect their customers who are bleeding under the weight of estimated bills.

The service-reflective tariff negotiated with operators guarantees that customers, grouped in different service bands, will pay a new set of tariff based on the number of hours they get power daily.

The new tariff plan also empowers customers to demand compensation, which the regulator, the Nigerian Electricity Regulatory Commission (NERC) will enforce, if DisCos fail to provide power for the number of hours agreed daily.

Ogaji said that GenCos were in dire financial strait over poor remittances by DisCos. The situation is worsened because GenCos are compelled to bill for only power requested by the DisCos rather than how much power they can generate (capacity).

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She said current generation capacity stands at 8,145MW but the DisCos continue to demand between only 3,000MW and 3,500MW of power daily thereby constraining over 4000mw, the so called stranded power, which is unpaid for.

According to Ogaji, total debt owed to the GenCos and acknowledged by the Nigerian Bulk Electricity Trading Company (NBET) is over N500billion but in their books it has risen to over N1trillion, where stranded power which the DisCos fail to take, is accounted for.

Due to the inability of the market to generate enough revenue to cover the cost of producing power, NBET began paying GenCos only for energy DisCos are willing to take, though the power purchase agreement signed by DisCos, obligates them to pay for both energy and capacity, Ogaji said.

“We have waited for nearly seven years for this market to work,” said the GenCos representative. “Which investor can sit down and be watching 4000MW of his invested resources stranded every month and no body is paying for it? “We have gas obligations and gas debts on our books and we have acquisition loans on our books, we have creditors on backs and now we have auditors asking how they should sequence our debts or classify as bad loans,”Ogaji said.

The service reflective tariff divides customers into five bands. Band A is for customers who get 20hours of power and above daily, Band B has customers who get power for 16 hours daily, C-band has customers who enjoy power for 12 hours and above a day.

Those that enjoy power for 8hours and above is D-band and E-band has customers who only get 4 hours and above but below 8 hours of power supply daily. Under the plan, there will be no increase for customers in Band E and those called lifeline customers irrespective of how much power they get every day.

With the declining oil prices and the consequent fall in revenue, the Nigerian Government says it can no longer afford subsidies on electricity which the world bank has said goes largely to the rich consumers who get power for the most hours daily and government now seeks to have customers who have enjoyed more stable power pay their fair share.

Within the past five years, the Federal Government has spent over N1.75trillion on electricity subsidies. Abolishing these subsidies was a condition upon which the World Bank provided $750million financing to repay loans to the Central Bank towards the power sector.

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