On the verge of collapse, 13 GenCos drag FG to court

Nigeria’s power crisis is in for more shocking waves as 13 power generation companies (GenCos) have sued the federal government for giving “preferential treatment” to two competitors with intent to harm the business interests of the others.

The GenCos, who said they are on the verge of collapse over debts in excess of N1 trillion, currently generate 80% of the power consumed in Nigeria.

However, they said the federal government is giving preferential treatment to Azura Power West Africa Limited and Accugas Limited (Seven Energy) via the partial sovereign guarantee (PSG) with the World Bank in the settlement of liabilities.

TheCable recently reported that Azura and Seven Energy were unable to settle their December 2017 invoices regarding their foreign loans but the federal government came to their rescue.

CONTROVERSIAL GUARANTEES

In August 2014, a federal government circular No. SGF/OP/1/S3/X/737 issued by Anyim Pius Anyim, then secretary to the government of the federation, had directed that a “specimen indemnity clause” be inserted into all contracts and agreements entered into by FGN with foreign entities.

This, he said, was “to provide additional protection to the Federal Government Nigeria and some of its separate legal entities such as the CBN, NNPC and NSIA whose assets may be liable to attachment in enforcement proceedings in foreign jurisdictions”.

Ngozi Okonjo-Iweala, then minister of finance, had sought the legal opinion of Mohammed Bello Adoke, then attorney-general of the federation (AGF), on the put-call option agreement (PCOA) signed with Azura Power — which included the PRG.

Adoke, TheCable learnt, reminded the minister of the SGF circular on the need to indemnify the federal government and prevent its assets from becoming vulnerable in the event of default.

The PCOA was eventually signed without Adoke’s legal opinion which was necessary to activate the agreement.

However, TheCable understands that when President Muhammadu Buhari assumed office in 2015, pressure was mounted on Abdullahi Yola, the then solicitor-general of the federation, by top presidency officials to give a favourable legal opinion.

Seven Energy is the leading integrated gas company in south-east Nigeria
At the time there was no attorney-general.

Yola then wrote a different legal opinion early August 2015, finally confirming the validity of the PCOA.

Thereafter, also in August 2015, the federal government signed off its backing of a $237 million World Bank PRG for the construction of the 450 megawatts Azura-Edo Independent Power Plant (IPP) — celebrated as the first of a series of new IPPs to drive growth in the power sector.

The Azura-Edo IPP is the Phase 1 of a 1,500mw IPP facility, whose groundbreaking was performed by then President Goodluck Jonathan in October 2014.

The lenders include JP Morgan, Standard Chartered Bank, Rand Merchant Bank, Standard Bank and Siemens Bank.

In November 2016, the federal government also signed a $112 million World Bank PRG for the supply of natural gas to the 560mw National Integrated Power Project (NIPP) in Calabar, Cross River state, by Seven Energy.

The PRG was to secure the supply of up to 130 million cubic feet per day of natural gas to Calabar and enable the regular generation of an additional 560mw to the national grid.

BENDING BACKWARDS

In suit no. FHC/ABJ/CS/180/2018 before a federal high court in Abuja, the 13 GenCos are suing the federal government, the Central Bank of Nigeria (CBN), minister of power, works & housing, Nigeria Bulk Electricity Trading Plc (NBET), Azura and Accugas.

The suit was instituted by Mainstream Energy Solutions Limited, Transcorp Power Limited, Egbin Power Plc, Northsouth Power Company Ltd, First Independent Power Limited, Shell Petroleum Development Co. Ltd., Geregu Power Plc, Sapele Power Plc, Pacific Energy Limited, Afam Power Plc, Ibom Power Company Limited, Omotosho Power Plc and Niger Delta Power Holding Company.

The aggrieved GenCos said that they have been bending backwards to continue generating electricity — making huge sacrifices, bearing the excruciating burden of not being paid for electricity generated and sold to NBET, also known as the bulk trader, “and facing the threat of going into extinction as a result of huge indebtedness to banks and financiers who provided the foreign currency-denominated acquisition loans with which the power plants were acquired from the federal government during the privatization exercise in 2012/13”.

NBET, they said, has consistently defaulted in paying for all electricity generated “in breach of its contractual obligation which requires that the GenCos be paid in fully (100%) not later than 45 days of invoice submission, and upon delay in payment be paid with interest at the agreed rate”.

The failure of NBET to pay the GenCos has led to default in meeting their obligations to their lenders, operations and maintenance contractors, equipment manufacturers, service providers and other persons and entities engaged by them for the purpose of ensuring the smooth and effectual generation of power, they further said.

The total amount owed the GenCos for electricity generated and supplied by them is approximately N800 billion, the plaintiffs said, adding that with capacity and interest payments due to them, the debts are now well over N1 trillion.

TEMPORARY RELIEF

To address the indebtedness of NBET — which buys power generated and sells to distribution companies (DisCos) — the federal government created a “temporary relief” in the form of the N701 billion payment assurance facility.

GenCos were to be paid for all electricity generated and supplied from January 2017 to December 2018 but they are accusing the government of not keeping faith with the agreement, which was reached with the participation of the ministry of power, CBN, NBET and the companies themselves.

The payment timelines are not clear, regular or consistent, the GenCos are, further alleging that only 80% of invoiced amounts are paid “whenever the FG chooses to pay, with 90% of gas suppliers invoices paid directly to gas suppliers out of the said 80% payment”.

Whatever is left of any payment tranche “is hardly sufficient for any meaningful activities of the GenCos”, they added, saying not only that the payments are insufficient, the outstanding debts before the introduction of the facility and the monthly shortfall payment of 20% of invoices have continued to pile up without any clear sight of how these will be paid.

POINT OF COLLAPSE

The  GenCos said while they are getting to the point of collapse, “the government deliberately entered into certain engagements with Azura and Accugas, under which both were, amongst other things, given the preferential treatment of having a World Bank Partial Risk Guarantee supported by the Sovereign Guarantee of the FG securing all payments due from NBET to Azura for power generated by the new Independent Power Plant and to Accugas for gas supplied to the Calabar NIPP”.

They said: “At the inception of the privatisation exercise, when the risk was so enormous and justified such a Partial Risk Guarantee being in place to protect investors, the FG refused to provide partial risk guarantee and sovereign national guarantee to the GenCos and their investors who consistently requested for same.”

They are angry that “all of a sudden” the same guarantees have been so “graciously given” to Azura and Accugas together “with payments due to the duo being treated as a first line charge”.

Government became “more concerned and committed to promptly paying Azura and Accugas 100% of their respective invoices”, they claim, noting that the  GenCos generating about 80% of the power being consumed in Nigeria continue to be owed huge debts for which the get paid only 80% of their invoices in an irregular manner.

On February 12, 2018, government reportedly concluded steps to immediately pay Azura and Accugas for their first invoices totalling $8,140,000 from the N701 billion facility meant for all the GenCos.

In all, the government will pay Azura and Accugas a total of $373,492,398 from the N701 billion facility.

‘DESTRUCTIVE EFFECT’

The  GenCos expressed worries that the federal government appears not to be concerned about the destructive effect of these discriminatory practices on the power sector as a whole.

They also expressed worries that such discriminatory practices appear to be enjoying the tacit endorsement of the World Bank, whose investment arm International Finance Corporation (IFC) is an investor in Azura, “and could unduly influence decisions to protect their interests to the detriment of the entire power sector”.

The angry GenCos attached as exhibit a letter they wrote to the minister of power to complain about the “favoritism” — even though they took loans from Nigerian banks who could be discouraged that despite their exposure to the risks, the federal government is supporting and paying new entrants in full with all risks covered without extending the same treatment to the other GenCos.

Creating such an uneven playing field will destroy value in the power sector, the GENCOs further argued.

They made the following demands in the letter:

• Confirmation of a plan for 100% payment of all outstanding indebtedness and interests due to the GenCos for electricity supplied and ancillary services provided by them.
• 100% payment (not 80% payment) of all invoices to be submitted by GenCos under the payment assurance programme.
• Payment of all sums due as capacity charge to the GenCos from 2013 till date.
• Non-admission of any additional beneficiary into the ₦701BN assurance facility without corresponding increase in the facility amount.
• Payment of the balance of ₦213BN from CBN Electricity Market Stabilization Fund
• Removal of all administrative bottlenecks delaying drawdown of payment assurance funds.
• Provision of sovereign guarantee and/or partial risk guarantee for all payment obligations to GenCos.

THE PRAYERS

Having held a meeting with the minister, Babatunde Fashola, whom they accused of not addressing the issues, the  GenCos decided to file a lawsuit.

They are asking the court for the following:

• The federal government and its agencies are duty bound to be fair, just and/or equitable in all their actions, dealings and directions as the same may relate or pertain to all actions, steps and/or directives  given or enforced to the benefit or detriment of all persons and/or corporate entities engaged in the provision of power/and or electricity within the Federal Republic of Nigeria.
• The ministry and agencies cannot lawfully and/or legally take any step, action or give any directives which have the effect of violating the legitimate expectations of the GenCos to be treated equally, justly, fairly and reasonably as it relates to all policies and decisions which affect or have the possibility of affecting the business interest of the plaintiffs.
• The court should grant an order of perpetual injunction restraining the government and its agencies from applying funds from the payment assurance facility for the payment of bills and invoices submitted by Azura and Accugas to NBET for payment/settlement.

The case was first heard by Binta Nyako on March 1, 2018 and she has fixed April 16 for the application for interim injunction.