Good morning All,
The current state of the power market in Nigeria is not compatible with achieving a high level of economic growth. It is also relatively clear that, whilst private capital can and should play a very important role in the future development and growth of this market, no further substantial private sector investments will be made in this sector as it currently stands unless substantial changes are made. It is, therefore, for the FGN to take brave steps to unlock this problem and provide solutions. This is not to belittle the economic challenges facing the public purse or to discount suboptimal behaviours from the private sector; but ultimately, it is only the FGN, in association with NBET and NERC, that can effect real changes in the market at this stage.
It is noted that the FGN has tried to take several steps to improve the conditions in the market over the last few years. It is in continuance of this effort that the FGN through NBET and the Debt Management Office (DMO) is proposing a promissory note regime as a programme to inject liquidity to provide some relief, though this arrangement is an an ad hoc measure and is only sufficient as a temporary improvement to current market liquidity conditions.
It is imperative to provide some clarification to the news that FGN has provided subsidy to electricity.
CLARITY ON “SUBSIDIES “
It is imperative to state that there is no FGN policy on subsidies. IT IS DEBT ACCUMULATION!!! If anyone has the proposed policy document please kindly share publicly.
- THE GENCOS MONTHLY GENERATION INVOICES AVERAGES AT ABOUT N270bn.
- THERE IS A MONTHLY SHORTFALL OR UNPAID GENCOS INVOICE OF 200bn monthly, ( NERC’s Quarterly Report).
- FGN budget only 900bn for 2025 which is NOT CASH BACKED TILL THIS MORNING (6/08/2025).
- This is a huge contagion that needs to be dealt with URGENTLY BY THE President.
- Outstanding Payments: Recall that GenCos are currently owed about ₦4 trillion (₦2 trillion for 2024 and ₦1.9 trillion in legacy debts) (2015-2024) with an accumulated debt of N200bn monthly for Jan -August 2025 alone we are looking at 1.6trn There are NO workable solutions, including cash payments, financial instruments, and debt swaps in sight at the moment.
- Budget Allocation Concerns: The 2025 government budget allocates only ₦900 billion, raising concerns about its adequacy to cover arrears and future deficits.The power generated by GenCos have continued to be consumed in full without corresponding full payment.
- THE ADEQUACY OF PROMISORY NOTE OR ANY PURPORTED REGULATORY INSTRUMENT.
A Promissory Note is a debt instrument, a legal contract issued by an Entity (“The Issuer”) that records a promise to pay a certain amount of money to another party (“The Holder”), either on demand or by a specified date.
A Promissory Note is a debt instrument, a legal contract issued by an Entity (“The Issuer”) that records a promise to pay a certain amount of money to another party (“The Holder”), either on demand or by a specified date. It is legally enforceable and allows the Holder the right to sue the Issuer for breach of contract/ failure to pay. It is important to understand the exact type of promissory note, its terms, and conditions before entering any transaction.
Generally, there are various Types of Promissory notes.
Given that we have not been formally communicated what or how these contagion will be dealt with, we are completely in the dark and all efforts to get clarity, is ignored. A VERY ABSURD SITUATION WHERE THE DEBTOR UNILATERALLY DETERMINES THE TERMS OF SETTLEMENT OF THE DEBTS.
The above assertion is predicated on the fact the promissory notes or bond proposal goes to the root of GenCos’ contractual arrangement in the market, GenCos are very apprehensive bearing in mind the financial risks associated with the promissory notes in relation also to their creditors.
These financial risks can be categorised as follows:
- Market risk: interest rate and foreign exchange risk,
- Credit risk, and
- Liquidity risk.
The specific risks must be assessed depending on the contractual arrangements for the promissory note. In addition to general financial risks, the specific risks must also be considered depending on the individual contractual terms of the promissory note concerned. These risks may be reduced or eliminated if suitable hedging strategies and instruments are available; however, this is not what GenCos want to gloss over but resolved.
Another risk from the promissory notes is the liquidity risk which may arise from financial obligations not being fulfilled in due time.
Also worthy of note is the fact that promissory notes do not allow repurchase in the open market, meaning that cash (out)flows are fixed until (final) maturity. In the case of repayment at final maturity, there is an additional refinancing risk because, at maturity, refinancing is only possible at the terms applicable at maturity and any potentially more favourable interim refinancing does not apply.
Again the promissory note provision must be in accordance that follows legal provisions such as the IFRS, which provides that at initial recognition, financial liabilities must be measured at their fair value (cf. IFRS 9.5.1.1). Hence, the proposed promissory notes must be measured at amortised cost, whereby the estimated future inflows/outflows are discounted at the effective interest rate over the expected residual term of the financial liability (cf. IFRS 9.4.2.1).
GenCos will not be pressured to make concessions if they do not meet their other obligations to other creditors since they GenCos are the counter parties and as such hooked with the liabilities.
NBET/FG must be aware that investors in power generation has interrelated contracts. These contracts are taken to their other counter parties such as bankers for finance based on what was agreed to. A breach of such contractual terms in the obligations of the government would have a spiral effect on the private investor both on his finances as well as the performance of his own obligations under the contract. The world has become one global market whereby trade and finance are done across borders, the effect of which is that there are direct linkages between markets and once one market develops a bad reputation for not honouring obligations in contracts, the effects could be immeasurable to an economy.
In view of the foregoing, the GenCos hereby pose the following questions to NBET.
CRITICAL QUESTIONS
The following questions need to be resolved and could be:
- What is the full scope of the promissory note issued to GenCos? We are aware that the DMO delineated window for 2025 and that is N 800bn. Note that this amount is for all FGN creditors including Dangote, State Govts, Julius Berger etc. This raises serious inadequacy funds even if the whole N800bn is allocated to GenCos only.
Second question is, - What is the holding period of the instrument?
- How certain is the full and timely repayment since Nigeria’s debt service to revenue is very high.
- What is the degree of legal enforceability in case of default?
- What is the size of the Allocation (“Available Funds”) for the Promissory note.
- How large is the Promissory Note Allocation relative to the Total accrued receivable.
- Is Promissory note exclusive to GenCos, or are other FGN Contractors allowed to participate in competition with the GenCos thus reducing GenCos chances?
- • The redeemability/ transferability of the proposed promissory note. Are the Promissory Notes transferrable?
The foregoing is predicated on the following:
- Past implementations of the DMO FGN Contractor Promissory Note have been competitive (multiple sectors/industries) and non-competitive (single sector/industry).
- Past implementations of the DMO FGN Contractor Promissory Note have been with annual caps on how large the Reverse Auctions could be to limit the total annual borrowing of the FGN in line with appropriation laws.
We respectfully request the above listed information and in writing from DMO either directly or via NBET. a) A meeting with the Debt Management Office (DMO), the Nigerian Electricity Regulatory Commission (NERC) and yourself to discuss the terms, conditions, and procedures of the DMO Promissory Note Program detailed at the earliest opportunity.
b) A copy of the Indicative Term Sheet, or other such documentation, for the DMO Promissory Note Security.
The above portends a huge contagion that needs to be dealt with IMMEDIATELY.
SHOULD GENCOS NOT BE WORRIED?
•Given that the minimum or Disco remittance Order (MRO) DRO accounts for far less than GenCos’ invoice, with no top-up plan or cash-backed subsidies.
•Given that there is no clear financing plan to take care of the gaping hole the unpaid invoices are creating, how are GenCos expected to
continue operating?
•Tax and Regulatory Challenges: High corporate income tax,
concession fees, royalty charges, and new FRC compliance obligations
are further straining GenCos’ revenue in addition to host community
demands.
•Need for a workable market design that can stabilise the market.
REMEMBER!!
GenCos are patriotic to the National Course, and this
has been demonstrated, up until now…
BUT..…
Patriotism alone cannot keep the machines Operational & KEEP THE LIGHTS ON !