THE GENCOS AND DEBT BURDENGovernment should pay more attention to the power sector

Even as bad as the current situation is, electricity supply in the country may get worse because of the liquidity crisis. The power generation companies (GenCos) last week warned of imminent shutdown due to a N4 trillion debt owed by the government for electricity generated and supplied to the national grid. The debt, which includes N2 trillion for 2024 and N1.9 trillion in legacy debts, is threatening the continued operation of their power generation plants. Both generation and distribution companies are owed trillions of naira, inhibiting their ability to pay gas companies, scale power generation, and distribute it. Today, the power sector is battling a cash flow crisis and other operational constraints that have impacted negatively on growth. 

The GenCos, according to the operators, were being paid less than 30 per cent of monthly invoices for power supplied to the national grid. They have also accused the Nigerian Bulk Electricity Trading Plc and other stakeholders of neglecting GenCos in the application of the Nigerian Electric Supply Industry’s (NESI) “waterfall arrangement”, which sees other service providers receive 100 per cent of their market invoices while GenCos get as little as 9 per cent of their due. Yet, the entire power value chain is built around electricity generated by the GenCos. “The 2024 collection rate has dropped below 30 per cent, and 2025 is not any better, severely affecting GenCos’ ability to meet financial obligations,” said Chairman, Board of Trustees, Association of Power Generation Companies, Sani Bello. “High corporate income tax, concession fees, royalty charges, and new Financial Reporting Council compliance obligations are further straining GenCos’ revenue.” 

Since the privatisation of the power sector in 2013, the generation capacity has remained abysmally low. There are more than 20 GenCos but their total output is still less than 6,000MW for a nation of more than 200 million people. South Africa, with a quarter of our population generates more than 58,000MW. According to experts, the country needs at least 30,000 MW of electricity to function optimally. But the Power Minister recently projected a mere 8000MW by 2027, a figure many industry stakeholders argue is not even feasible.

Nigeria’s continued poor output of power is attributed to a variety of reasons – from lack of adequate investments, poor incentives and inappropriate tariff regime to non-payments of invoices, inadequate funding of government subsidies, and corruption. But recently, the financial crisis of the generation companies is worsened by frequent grid collapses. For instance, the national grid suffered 12 full or partial collapses in 2024, causing severe commercial and technical disruptions for the sector. Industry experts say frequent disruptions damage critical infrastructure like generators and transformers, leading to costly repairs. As a consequence, the GenCos face reduced revenue from lower power sales, penalties for missed deliveries while increased operational and other sundry costs further undermine the reliability of power supply. 

The Kainji and Jebba hydroelectric plants reportedly lost about N22 billion last year due to system instability. Indeed, a recent study revealed massive energy losses at the Odukpani power plant due to frequent shutdowns and startups, which resulted in wasted gas and reduced efficiency. An electricity industry expert, Stephen Ogaji, has noted that grid instability causes significant revenue losses, especially when plants cannot generate power, adding that the economic impact extends beyond GenCos as it affects the entire economy that relies on stable power. 

To get around the problem, many suggest the need to decentralise the national grid. As currently constituted it has become a major constraint to growth and development in the sector.

To address the threat of a total shutdown, the authorities must do what is right. Nigerians should not be subjected to further inconveniences through power outages.