Tinubu Approves N3trn Payment to Clear Power Sector Debt

President Bola Tinubu

Tinubu approves payment of the N3 trillion electricity sector debt

The gradual settlement of the N3.3 trillion debt owing to gas and electricity firms has been approved by President Bola Tinubu.

Adebayo Adelabu, the Minister of Power, made the news on Thursday, May 16, during the 8th Africa Energy Marketplace in Abuja.

The National Integrated Electricity Policy and Strategic Implementation Plan strategies, as well as Nigeria's Sustainable Energy Future, were the main topics of discussion during the event.

According to the official currency rate on May 16, this debt is made up of N1.3 trillion owed to gas businesses, or GasCos, and $1.3 billion (or N1.99 trillion) payable to power-generating firms, or GenCos.

Adelabu had earlier brought attention to Nigeria's N3 trillion debt to these businesses on February 15, noting difficulties in maintaining power subsidies.

Meanwhile, the government has moved swiftly to rectify the situation.

According to Ed Ubong, Director of the Decade of Gas Secretariat, the federal government has made significant progress in settling GasCos debts, with over $120 million paid out in just under a month.

Adelabu provided an update on March 29, promising that the government would prioritize the settlement of outstanding debts, including those owed to Egbin Power, starting from April.

The minister presented a comprehensive payment plan, detailing a strategy to clear the N1.3 trillion debt owed to Generation Companies (GenCos) through a combination of direct cash payments and promissory notes.

Furthermore, President Tinubu directed the Finance Minister to promptly disburse N130 billion from the gas stabilization fund to offset the $1.3 billion debt owed to Gas Companies (GasCos), providing immediate financial relief.

The payment will be made through a hybrid arrangement involving an immediate cash disbursement and future royalty payments, a solution that has been mutually agreed upon and deemed acceptable by the gas suppliers.

Adelabu said: “It is true that I mentioned that Mr President has approved the submission of the minister of state petroleum (gas) to defray the outstanding debts owed to the gas supplying companies to the power sector operators.

“The payments will be in parts. We have the legacy debt and we have the current debt. For the current debt, approval has been given for a cash payment of about N130 billion from the gas stabilisation fund, which the federal ministry of finance will pay, if not already paid.

“The payment for the legacy debts is going to be made from future royalties and streams of income in the gas sub- sector which is quite satisfactory to the gas supply companies.

“The last amount that was being quoted was $1.3 billion, which we believe will go a long way to encourage these gas companies to enter into firm supplying contracts with the power generating companies.

“The situation we are in now is on a best endeavour model, which means there is no firm contract between the gas companies and the majority of the power generating companies. The day they can supply gas, they will, the day they cannot supply gas, there is no penalty.

“But once there is a firm contract they will be under contractual obligations to supply gas to these power-generating companies so that we can have consistent power generation.”

According to Adelabu, Tinubu authorized payment subject to debt reconciliation being carried out by the government and GenCos.

He said: “For the power generating companies, the debt is put at N1.3 trillion. I can also tell you that we have the consent of Mr. President to pay on the condition of settling the reconciliation of these debts between the government and the power- generating companies.”

“And this, we have successfully done, and it is being signed off by both parties now.

“The majority have signed off, and we are engaging others to ensure we have a 100 percent sign-off from the power- generating companies.

“The modalities for paying this will be in two ways. Of course, there will be a cash injection, immediate cash injection.”

Adelabu added that the federal government lacks the financial stability to pay down N1.3 trillion in full.

He said: “But there is a fraction of it that will be paid in cash while the remaining fraction will be settled through a guaranteed debt instrument, preferably a promissory note.”

“That is more like a comfort to these companies that in the next two, three to five years, the government is ready to defray this debt finally.

“This will go a long way to encourage the power generating companies to incentivise them to even invest more in generation so that you can know our generating output from the level it is now to a higher level because as I mentioned, there is an opportunity for demand locally and across the border. And that is a source of foreign exchange earnings for the country.”

Adelabu went on to say that the 700 MW of power generated by the Zungeru hydroelectric power plant set a new record for the Nigerian electricity supply industry, which now stands at 5,000 MW.