By Olayiwola Mercy
The federal government has announced plans to settle an outstanding debt of N1.7 trillion owed to Generation Companies (GenCos) within a short timeframe. This move comes after months of pressure from power generation companies who have threatened to halt operations due to unpaid invoices.
The GenCos are currently owed approximately N4 trillion, comprising N2 trillion for 2024 and N1.9 trillion in legacy debts. The 2025 government budget allocates only N900 billion, raising concerns about its adequacy to cover arrears and future payments. This huge debt outlay is greatly inhibiting GenCos’ ability to meet their obligations to lenders, operations, necessary maintenance, spare parts procurements, and employee-related obligations.
The GenCos have demanded immediate implementation of payment plans to settle all outstanding invoices, reprioritization of payments under the waterfall arrangement to give full priority to 100% payment of GenCos’ invoices, and a clear financing plan to backstop exposures in the NERC’s Supplementary Order to the MYTO and the DRO 2024. They also seek provision of payment security guarantees backed by World Bank/AFDB to guarantee full payment to GenCos.
The government plans to pay off 2023 and 2024 verified federal government obligations to GenCos and GasCos within one to six months. The Minister of Finance, Wale Edun, has stated that the government will develop and commence implementation of a robust and achievable plan for the resolution of the N1.7 trillion sector liquidity issue. The plan involves issuing bonds and promissory notes to settle the debts.
Aside from the huge debts, GenCos are operating under harsh monetary and fiscal conditions, occasioned by the economic realities facing the country today. They also face tax and regulatory challenges, including high corporate income tax, concession fees, royalty charges, and new FRC compliance obligations, which further strain their revenue.
