The Nigerian Electricity Supply Industry (NESI) is currently structured and operates as a transitional, contract-based electricity market, with the Nigerian Bulk Electricity Trading Plc (NBET) functioning as the bulk buyer of power generated and put on the National Grid by Generation Companies (GenCos) through a Power Purchase Agreement (PPA). The Power Purchase Contracts executed between GenCos and NBET provide guidelines that govern GenCo-NBET transactions and relationship.

Furthermore, NBET functions as the wholesaler of power purchased from GenCos to Distribution Companies (DisCos) through the Vesting Contract. The DisCos in turn, through the provisions of their licenses distribute electricity to end-users. Vesting Contracts govern the transactional relationship between DisCos and NBET. Under the DisCo-NBET Vesting Contracts, each Disco as a Buyer is contracted to receive a certain percentage of energy from NBET, which in turn will receive energy from each GenCo under the relevant PPAs.

The transaction cycle commences with the Generation Companies producing electricity which is sold to NBET by its injection into the National Grid. This transaction is made possible contractually by the Power Purchase Agreement (PPA) executed between the GenCos and NBET. The transaction takes place in a monthly cycle, at the end of each calendar month the invoicing process commences from the Market Operator (MO). Twenty (20) days after the end of the contract month, the settlement cycle commences with the issuance of the Final Settlement Statement “’FSS’” (a Preliminary Settlement Statement “’PSS’” is issued prior for checks and disputes) from the Market Operator. NBET receives the FSS from the Market Operator for further processing. The traded quantities for capacity and energy for the GenCo, DisCos and other participants are captured in the FSS. For the GenCos, the quantities that was injected and received on the National Grid is captured, while quantities off taken by the DisCos are equally captured.

Using the information contained in the FSS, NBET prepares and dispatches the DisCos invoice within two (2) days of the receipt of the FSS. Electricity injected into the Grid is off- taken by the DisCos, and then distributed and billed to retail users. The DisCos are mandated to collect the corresponding expected revenue from electricity users for onward remittance to the GenCos through NBET. It is important to state that the commercial activities of DisCos (and corresponding end-user electricity tariffs) are designed by the Nigerian Electricity Regulatory Commission (NERC) in such a way that the allowable tariff is just a fraction of the cost reflective tariff required to sustainably administer the NESI; that means that the tariffs are subsidized. This subsidy, generally referred to as Tariff Shortfall, is an obligation of the Federal Government of Nigeria (through the NBET) with the aim to gradually transition the sector towards a cost reflective tariff, in order to allow the DisCos meet up with their planned performance trajectories.

DisCos are mandated to collect, in whole, revenue based on the approved tariff which is a percentage of the ACTUAL cost reflective tariff (i.e., Cost reflective tariff minus the Shortfall). The approved tariff determines the percentage of the total invoice figure to be paid by the DisCos and this is referred to as the Minimum Remittance (MR). The Minimum Remittance is contained in an Order that is published by NERC called the Minimum Remittance Order (MRO). This order essentially assigns the responsibility of a certain percentage of the monthly invoice from NBET to the DisCos i.e. a DisCo is assigned the responsibility to pay the X percentage of the total DisCo’s invoice which is issued by NBET.

DisCos are mandated to collect, in whole, revenue based on the approved tariff which is a percentage of the ACTUAL cost reflective tariff (i.e., Cost reflective tariff minus the Shortfall). The approved tariff determines the percentage of the total invoice figure to be paid by the DisCos and this is referred to as the Minimum Remittance (MR). The Minimum Remittance is contained in an Order that is published by NERC called the Minimum Remittance Order (MRO). This order essentially assigns the responsibility of a certain percentage of the monthly invoice from NBET to the DisCos i.e. a DisCo is assigned the responsibility to pay the X percentage of the total DisCo’s invoice which is issued by NBET.

Based on the Vesting Contracts (VCs), NBET expects payment in accordance with the MRO from the DisCos following 15 working days of receipt of the invoice. In the interim, NBET receives the payment invoices from the Generation Companies for the electricity sold to NBET via the National grid. The invoices are verified to ensure correctness. Following receipt of payments from DisCos, NBET schedules a payment committee meeting to disburse the payments received from the DisCos /other customers.

The Payment Committee is comprised of all NBET’s Department Heads, and is chaired by the Managing Director. The Committee reviews and approves the payments to be made to beneficiary GenCos based on the FSS/Invoices. With the approval from the NBET Payment Committee documents, the NBET Finance Department effects the approved payments.

It is also worthy to note that the payment shortfall based on the MRO i.e. the difference between the Cost Reflective Tariff and the approved tariff (the Subsidy) is provided by the Federal Government of Nigeria to plug tariff shortfall by paying the equivalent directly to the Generation Companies. The funds used to plug the tariff shortfall is obtained under the Power Sector Recovery Program (PSRP);

Under the PSRP, there are three sources of funds:

1. FGN Appropriation
2. World Bank PSRO Loan
3. Payment Assurance Facility I & II

These funds are used to clear the following payment obligations:

1. Ongoing tariff shortfall
2. Historical tariff shortfall

View Gencos Payment:
For the year 2021
For the year 2022
For the year 2023