GENCOs Sue FG Over Alleged Unfair Treatment…Demand Payment of Sovereign Guarantee

The Power Generation Companies in Nigeria (GENCOs) has filed a lawsuit against the Federal Government of Nigeria for deliberately meting out discriminatory treatment to GENCOs and their gas suppliers with intent to harm their business interests, Per Second News gathered on Tuesday.

The GENCOs alleged preferential treatment on Azura Power West Africa Limited and Accugas Limited to the detriment of the Nigerian Electricity Supply Industry and the Power Sector as a whole.

The Power Generation Companies filed the suit at the Federal High Court, Abuja, represented by Mainstream Energy Solutions Limited (“Mainstream”), Transcorp Power Limited (“Transcorp Power”), Egbin Power Plc (“Egbin”) and Northsouth Power Company Limited (“Northsouth”) who are all Plaintiffs in the suit.

Sued as defendants in the suit are the Federal Government of Nigeria (FG), Central Bank of Nigeria (CBN), Minister of Power, Works & Housing, Nigeria Bulk Electricity Trading Plc (NBET), Azura Power West Africa Limited (“Azura”) and Accugas Limited (“Accugas”).

Per Second News gathered that the GENCOs are worried that the FG appears not to be concerned about the destructive effect of these discriminatory practices on the power sector as a whole. They are also worried that such discriminatory practices appear to be enjoying the tacit endorsement of the World Bank, which has IFC as an investor in Azura, and could unduly influence decisions to protect their interests to the detriment of the entire power sector.

In the suit N0 FHC/ABJ/CS/180/2018, the GENCOs are contending that the FG and its agencies sued as Defendants, have treated and intends to continue treating the GENCOs, their investors and suppliers unfairly and in a discriminatory manner notwithstanding the fact that the GENCOs have been bending backwards to continue generating electricity for the national grid, making huge sacrifices, bearing the excruciating burden of not being paid for electricity generated and sold to Nigeria Bulk Electricity Trading Plc, NBET.

They alleged the threat of going into extinction as a result of their huge indebtedness to banks and financiers who provided the foreign currency-denominated acquisition loans with which the power plants were acquired from the FG during the privatization exercise in 2012/13.

The crux of the GENCOs claims is that NBET has consistently defaulted in paying them for all electricity generated and put on the national grid in breach of its contractual obligation, which required that the GENCOs be paid in full (100%) not later than 45 days of invoice submission, and upon delay in payment be paid with interest at the agreed rate.

The failure to pay the GENCOs their entitlement for electricity generated by them which have since been consumed by electricity consumers in Nigeria has continued to have huge negative impact on the GENCOs and their power plants such that the GENCOs corporate existence has come under severe threat, the power generation companies revealed.

The GENCOs alleged that the total amount owed them for electricity generated and supplied by them is approximately N800bn. Together with capacity and interest payments due to them, the GENCOs also claim the federal government owed in excess of N1trillion. As a way to addressing the huge mounting indebtedness of FG and NBET to the GENCOs, the FG working with the Ministry of Power, Works and Housing, NBET, CBN and the GENCOs created as a temporary relief, N701bn Payment Assurance Facility under which the GENCOs were to be paid for all electricity generated and supplied from January 2017 to December 2018.

The process of working out of the facility and the presentation of same to the GENCOs clearly indicated that the N701bn Facility was meant to pay existing GENCOs as at the time the facility was put in place, as the target beneficiaries.

The GENCOs are aggrieved that the FG has not kept faith with payments from the N701bn facility as payment timelines are not clear, regular or consistent. Also, 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.

The power generating companies claimed that whatever is left of any payment tranche is hardly sufficient for any meaningful activities. Not only that the payments are insufficient, the outstanding payments owed the GENCOs before the introduction of the N701bn 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 the GENCOs alleged.

The GENCOs said it has resisted all attempts by the federal government to make the N701bn Facility appear to the public as a privilege and favour to the GENCOs. The companies stated that they are entitled to full payment for electricity generated by them at their respective costs and supplied to the national grid.

The GENCOs said they relied on the payment assurance representations made by the Federal Government to alter their positions to their detriment by entering into contractual obligations to ensure recovery of additional plants capacities and effective operation of the plants.

The GENCOs are piqued that all of a sudden, the same Partial Risk Guarantees/Sovereign Guarantees which the FG refused to give to them have been so graciously given to Azura and Accugas together with payments due to the duo being treated as a first line charge.

The GENCOs are of the position that by the glaring preferential treatment to Azura and Accugas and discriminatory treatment of the GENCOs, the FG and its agencies have violated and intends to continue violating the legitimate expectations of the GENCOs and their gas suppliers that FG and its agencies would treat all operators in the power sector fairly, equitably, without bias or discrimination of whatever nature and would create a level playing field for all operators in the power sector.

“We are simply asking to be treated fairly; if 100% payment can be made by the Federal Government to some operators, it should be made to all operators; if timely payments are to be made, they should be made to all operators in the sector; if partial risk or sovereign guarantees can be issued by the FG to secure the payment obligations of some operators, such guarantees should be issued to secure payments due to other operators; if payments due to some operators are to be treated as a first line charge, then same status should be accorded to payment due to other operators.

Investors who took the risk to invest in the power sector in the very “dark” days should be rewarded and not punished to their faith and sacrifice, officials of the GENCOs said.

In a presentation justifying its discriminatory treatment of the GENCOs and preferential treatment for Azura and Accugas, which the GENCOs exhibited in the suit, the FG clearly admitted that “The current system of settling invoices by NBET and NDPHC by the CBN Payment Assurance Facility (N701bn Facility) means invoices are not settled on time or in full (PAF guarantees payment of 80% of the invoices. If Accugas and Azura invoices are treated in the same manner, both (Azura and Accugas) will suffer contractual breaches and will be forced to draw on their respective sovereign guarantees”. Thus to the FG, the GENCOs and their investors should continue to suffer the consequences of FG and NBET’s fragrant breach of the GENCOs right to full timely payment under their respect PPAs, while Azura and Accugas must be protected at all costs from such breaches, even if it meant depleting the N701bn Facility meant for the GENCOs.

While the GENCOs face imminent shutdown to a point where their plants  may not be able to generate power again, the Federal Government deliberately and clearly 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, the GENCOs alleged.

Meanwhile, at the inception of the privatization 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.

Prior to instituting the suit, the GENCOs said they made frantic efforts to draw the attention of the FG to the implications of such one-sided preferential treatment of one or two new operators to the detriment of the GENCOs responsible for the lion share of Nigeria’s electricity generation. In a letter exhibited by the GENCOs in the suit, dated February 13 2018, and addressed to the Minister of Power, Works and Housing, a copy of which was endorsed to the MD/CEO of NBET, the GENCOs noted that as difficult as the situation the FG foisted on them was, they (GENCOs) extended an uncommon understanding as patriotic and faithful Nigerians trusting that together, the FG would work with the GENCOs to resolve teething problems of the sector and by so doing ensure steady electricity supply in no too distant future.

The GENCOs also stated in the letter that they took loans from Nigerian banks with some of the banks leaning on international banking institutions to provide support them. They argued that it will be destructive and quite discouraging for these banks who have empathized with us and the FG in the last 4 years to realize that the FG is supporting and paying new entrants in full with all risks covered without extending the same treatment to the GENCOs. Creating such an uneven playing field will destroy value in the power sector, the GENCOs further argued.

The demands of the GENCOs as stated in the letter are as follows:

1. 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.
2. 100% payment (not 80% payment) of all invoices to be submitted by GENCOs under the payment assurance program.
3. Payment of all sums due as capacity charge to the GENCOs from 2013 till date.
4. Non-admission of any additional beneficiary into the ₦701BN assurance facility without corresponding increase in the facility amount.
5. Payment of the balance of ₦213BN from CBN Electricity Market Stabilization Fund
6. Removal of all administrative bottlenecks delaying drawdown of payment assurance funds.
7. Provision of Sovereign Guarantee and/or partial risk guarantee for all payment obligations to GENCOs.

The GENCOs stated that sequel to their above cited letter, a meeting was held on February 14 2018 amongst the GENCOs, Minister of Power, Works and Housing, Babatunde Fashola, SAN and NBET CEO, Dr. Marilyn Amobi. At the said meeting, the Minister confirmed FG’s decision to settle the bills and invoices of Azura and Accugas in full and with priority from the N701bn Facility, even though the FG was fully aware of the consequences of such unjust and inequitable decision vis-à-vis the interests of the GENCOs. Although, the Minister denied any intentional discriminatory treatment of the GENCOs, the meeting did not address the issues raised by the GENCOs in their letter, thus compelling the GENCOs to seek judicial protection and safeguard of the power sector and their investments by ensuring that the wrongs intended to be continued against the GENCOs do not continue.

According to court documents cited, the GENCOs are asking the Court to, amongst other things, declare that (a) the FG and its agencies (1^st -4^th Defendants) 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; and (b) that the 1^st -4^th Defendants 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 by the 1^st – 4^th Defendants as it relates to all policies and decisions which affect or have the possibility of affecting the business interest of the Plaintiffs.  The GENCOS are also praying the Court to grant an Order of Perpetual Injunction restraining the 1^st – 4^th  Defendants from applying funds from the Payment Assurance Facility  for the payment of bills and invoices submitted by the 5^th and 6^th Defendants (Azura and Accugas) to the 4^th Defendant (NBET) for payment/settlement in a manner and form which ensures that the percentage of the 5^th and 6^th Defendant’s  invoices paid by the 1^st to 4^th  Defendants is higher than the percentage of the GENCOs invoices paid by the Defendants or which gives preferential treatment to the 5^th and 6^th Defendants or discriminates against the GENCOs.

The first hearing was on March 1^st 2018.

Hearing has been fixed for the hearing of the GENCOs Application for Interim Injunction on April 16 2018 by Justice Binta Nyako of Federal High Court, Abuja.