NIGERIA’s power sector is facing an escalating financial crisis, with generation companies (GenCos) warning of potential shutdowns for a long time.
This comes as GenCos, in a new letter to the Financial Reporting Council of Nigeria (FRCN), disclosed the possibility of tariff increase following the imposition of new taxes on power companies.
With promises made to address the financial crisis in the power sector, documents yesterday from the Nigerian Electricity Regulatory Commission (NERC) showed that the Federal Government only paid N371 billion or 19.5 per cent of N1.9 trillion subsidy coming from last year’s tariff shortfalls.
The development indicates a tough task ahead for state governments that are taking over regulatory oversights from NERC. The Guardian learnt that over 99 per cent of the N762.1 billion paid to the GenCos came from distribution companies (DisCos) who were also unable to collect N155 billion of their bills. Between January and November 2024, GenCos issued invoices valued at N2.7 trillion. But only N762.1 billion was paid, leaving a huge shortfall of N1.94 trillion, according to official documents.
This translates to a mere 28.18 per cent payment rate, highlighting deep-seated revenue collection and enforcement challenges.
A breakdown of the monthly invoices shows that just 9.46 per cent of January’s N256 billion bill was paid, while February’s N208 billion received only 9.29 per cent payment. March recorded an N235 billion invoice with a 9.34 per cent payment rate, while April’s N213 billion saw a temporary spike to 40.91 per cent. Payments fluctuated between 31.01 per cent and 39.05 per cent in the following months, with November recording the highest rate at 39.05 per cent.
Despite this gradual improvement, the payment gap remains high as the development has led to stranded 26,160MW of generated power. As of yesterday, 24 power plants on the national grid were generating between 3,900MW and 4,900MW. This is far below the 6,000MW target on which the tariff increase for band A was executed.
The Nigerian Electricity Regulatory Commission (NERC) report for 2024 reveals that GenCos billed a total of N2.972 trillion for electricity supplied, but only N155 billion or seven per cent of the outstanding debt was attributed to market inefficiencies by DisCos.
The remaining N1.94 trillion resulted from unfunded government subsidies, which stem from the gap between the cost of production and the tariffs charged to consumers.
Despite allocating N450 billion in 2024 to cover subsidies, the government used the funds to clear tariff shortfalls from 2023, leaving the 2024 shortfall largely unresolved.
The Nigerian Bulk Electricity Trading (NBET) company contributed a paltry N371 million toward the 2024 tariff deficit, covering just 0.019 per cent of the outstanding debt.
While DisCos managed an 84 per cent remittance rate on their Debt Repayment Obligation (DRO) of N1.031 trillion, paying N867.08 billion, the overall invoice settlement rate for GenCos stood at 29.48 per cent.
A letter seen by The Guardian, addressed to Minister of Power, Adebayo Adelabu and signed by the Chairman of the Board of Trustees of the Association of Power Generation Companies (APGC), Sani Bello, has called for urgent intervention.
The letter, dated 17th of February copied key officials, including the Chief of Staff to the President, the Governor of the Central Bank of Nigeria (CBN) and the Acting Managing Director of NBET and outlined the severe impact of the persistent shortfall in payments.
It noted that NBET’s remittance to GenCos for electricity sold to DisCos was below 30 per cent, making it nearly impossible for GenCos to sustain operations.
The development forced the operators to demand immediate approval of a mechanism to ensure 100 per cent payment of GenCos’ invoices by NBET.
They also demanded the settlement of GenCos’ outstanding historic market debts.
The Federal Government had earmarked N450 billion for 2024 and N900 billion for 2025 to partially clear the debts, but stakeholders argue that without a sustainable funding structure, the crisis will persist.
In the letter to FRCN, GenCos expressed deep concern regarding the financial implications of Section 33 subsection one of the FRC Act (Amended) 2023, which mandates annual levies based on turnover.
GenCos said being subjected to multiple taxes at both federal and state levels would further squeeze their already strained finances.
The operators noted that despite not being able to operate optimally due to debt, they are being forced to pay corporate tax at 30 per cent, education tax at 3 per cent, Police tax (introduced at the federal level), land use charge at the state level and various other state and local government levies.
Already most power plants in Nigeria are operating on the verge of collapse according to the February report of NERC that measures the performance of the plants.
In February 2025, Olorunsogo 2 reported a plant availability factor of 5 per cent. This means that the plant is in dire situation with capacity down by 95 per cent. Afam had plant availability factor of 10 per cent, Sapele Steam had a factor of 4 per cent, Alaoji recorded a stark 0 per cent availability, indicating it was completely offline. Omotosho-2 had a 14 per cent availability factor, and Ihovbor-1 was at 9 per cent. Geregu-1 showed a 20 per cent availability factor, while Geregu-5 performed better at 53 per cent. Omotosho-1 had a 52 per cent availability factor, and Ibom power-1 reported 11 per cent availability factor, while Rivers-1 stood at 39 per cent.
Omoku-1 had a 17 per cent availability factor, and Ikeja-1 performed strongly at 98 per cent. Trans Amadi had a 7 per cent availability factor, while Igbafo_1 was at 46 per cent. Overall, the grid total plant availability factor for these plants was 40 per cent.