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Friday, March 24, 2023

Auditors Flag Geregu Power N46.1bn Receivables Amid Afreximbank Talks

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Geregu Power’s N46.1 billion in trade receivables is a sticking point for its auditors, as the Electricity Generating Company or GENCO is in talks with Afreximbank for a potential acquisition of a portion of its shares.

Geregu booked an impairment charge covering 16% of the receivables in its 2022 financial statement.

“The company bills its sole customer monthly based on energy and capacity charges. The risk of impairment to trade receivables relates to both capacity and energy charges as the customer does not pay as and when due,” PricewaterhouseCoopers, its auditor said.

“We focused on this area due to the materiality of the trade receivable of N46.1 billion and the resulting impairment of N7.5 billion, and because it requires significant judgement both for timing of recognition of impairment and estimation of the amount of such impairment.”

Geregu Power Plc notified the Nigerian Exchange Limited and the investing public of its discussions with the Fund for Export Development in Africa (FEDA) for the acquisition of a portion of Geregu Power Plc shares.

Any share purchase decision would likely take into consideration the potential for impairments to grow substantially if trade receivables become impossible to collect in the largely illiquid Nigerian energy market.

Complicating matters for any potential investor is a further N38.49 billion in receivables due from related party Amperion Power Distribution Company Ltd, a company controlled by Geregu Power Chairman Femi Otedola.

This brought trade and other receivables to a total of N76.944 billion. Geregu Powers profit slumped by 50% in 2022, while revenues fell 33%.

Geregu Powers Revenue arises mainly from the sale of electric power. The Company has mainly two sources of revenue which is energy and capacity charge from the sale of electric power.

Energy generated in addition to the associated available capacity are sent out through Transmission Company of Nigeria (TCN) represented by the Operator of the Nigerian Electricity Market (ONEM) also known as the Market Operator (MO).

The Market Operator in turn will issue monthly settlement statements for energy and capacity delivered. The final settlement statements issued by MO are used to invoice the bulk purchaser, the Nigerian Bulk Electricity Trading Plc (NBET).

NBET has reviewed the Thermal Gencos wholesale tariff based on USD2.98/Mscft effective August 1, 2021 (USD3.30/Mscft as at 31 July 2021).

The base tariff used were as follows: Energy N10,082/Mwh and Capacity Charge N5,101/Mwh subject to indexation on the basis of changes in the CBN Exchange Rate adjusted monthly as provided in the Bulk Power Purchase Agreement Effective April 1, 2016.

Geregu Power thinly traded shares closed trading on the NGX (on Feb. 1st) at N210 per share for a market capitalisation of N525 billion. Geregu Power Plc thermal power plant is located in Ajaokuta, Kogi State, Nigeria.

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