GenCos reject FG’s 50% debt haircut, demand full payment of over N5tn debt

Power generation companies (GenCos) have rejected contract offers from the Federal Government asking them to accept only 50 per cent of the debt owed them for electricity supplied to the national grid.

The proposal, described as a 50 per cent “haircut,” was sent to all GenCos except Azura Power West Africa. Under the plan, the government offered to pay about N2.4 trillion, representing 49.9 per cent of the total debt, which has risen to over N5 trillion as of June.

President Bola Tinubu had earlier agreed to clear the debt through a bond issuance plan during a meeting with the companies in July.

After the Federal Executive Council approved the repayment model in August, senior government officials met with GenCo owners in early October, where the Special Adviser on Energy, Olu Verheijen, announced that an agreement had been reached.

However, the contract documents issued to GenCos on October 16 contained clauses demanding they forfeit half of the debt as final settlement.

The documents, titled “NBET Deed of Settlement” and “Deed of Novation,” proposed transferring the debt from the Nigerian Bulk Electricity Trading Plc (NBET) to a new special purpose vehicle, NBET Bond Finance Company Plc.

The agreements stated that GenCos must accept the reduced payment as full and final settlement of all outstanding claims, including interest and future losses, while payments would be funded through an FGN-backed bond issuance programme.

A GenCo source told Journalists that the offer was made in bad faith and undermined President Tinubu’s commitment to resolving the financial crisis within the Nigerian Electricity Supply Industry (NESI).

The source said the 50 per cent proposal was rejected during a meeting with the Ministers of Finance and Power, the Special Adviser on Energy, and selected GenCo chairmen.

The source added that the GenCos had proposed two alternative options which were ignored in the final contract. The first option recommended immediate payment of N2.4 trillion, with the balance deferred.

The second option suggested a 10 per cent haircut only on interest relating to energy and capacity delivered, while full payments should be made on deemed capacity and true-ups.

Another GenCo official confirmed that all companies rejected the offer after receiving the documents on October 16, with a deadline of October 21 to respond.

The contract papers warned that without a debt settlement plan, financial distress across NESI could worsen, reducing power generation, lowering supply to customers, increasing the risk of system collapse, and discouraging investor confidence.

Responding to the development, the Managing Director of Mainstream Energy Solutions (operators of Kainji and Jebba hydro plants), Lamu Audu, said the solution must be acceptable to all parties.

He stressed that resolving the financial challenges facing GenCos is essential to attracting new investments, noting that both hydro and gas plants are struggling financially.

Energy market expert, Lanre Elatuyi, also criticised the government’s proposal, saying it sends a wrong signal to investors. He warned that GenCos already face liquidity challenges that limit their ability to operate optimally or expand.

According to him, the proposed haircut would worsen their financial positions and heighten resource adequacy problems in the electricity sector.

He added that generation costs may rise as companies try to recover potential losses.

Elatuyi said no investor would be confident in a sector where cost recovery remains uncertain.