FG moves to boost power supply with N701 bn gas guarantee
The Federal Government has moved to resolve a critical challenge facing power supply in the country by approving N701billion as Power Assurance Guarantee for the Nigerian Bulk Electricity Trading (NBET). The move will guarantee payment for gas supplied for power generation and could act as an incentive for improved gas supply to power generating plants across the country.
Generating companies (GENCOs) have recently threatened to cut off power supply to the transmission lines because of the huge debts that they were being owed by distribution companies.
The Genco’s could also not pay for gas supplied to them because of the debts.
“The revenue gap in the industry has grown too large and needs an urgent solution. There is a case of a single gas supplier that is being owed as much as $32 million,” sources in the power sector have told BusinessDay.
In January this year, Tony Elumelu, chairman of the Transcorp Group, disclosed in a media interview, that Transcorp Power Holdings was owed almost N50 billion.
“When we put in the invoice for this month (January), we should be owed almost N54 or N55 billion. How do you survive in business like this? How? Other GenCos I know are actually dying, Elumelu said.
Because Gencos are being owed, gas suppliers are also owed significant amounts of money for gas supplied to the power sector even before the completion of the privatisation. That was part of the sector debt that the N213 billion the Central Bank of Nigeria (CBN) power intervention facility was supposed to liquidate.
“Since 2014, after the privatisation, new gas debts have arisen with no payments to gas suppliers by the GENCOs, simply because the government, through the Nigerian Bulk Electricity Trading Company (NBET) has been unable to pay Gencos for power generated”, Odion Omonfoman, energy analyst and chief executive, New Hampshire Capital, told BusinessDay recently.
But some stakeholders want the new money the government is putting up to pay gas debts to go directly to the Gencos.
“While it is a good move, I will have preferred the money go directly to the gas suppliers,” says Thomas Dada, president of Nigerian Gas Association.
The reason is not farfetched. “For a long time, NBET has not played its role effectively in the sector and the liquidity keeps getting wide,” says Chuks Nwani, energy lawyer and vice president of PowerHouse International, an energy transactions advisory service.
The facility will be provided by the Central Bank and will guarantee the payment for the evacuation of power produced by the Generating Companies (GenCos). The objective is to assist in resolving over N500bn debts owed to gas suppliers.
“The concern is what happens when the current debt is settled and fresh ones start to pile up?” asks Nwani. “What the sector needs is fundamental reforms, not mere token actions.”
Babatunde Fashola, minister of Power, Works and Housing, who briefed newsmen after the weekly Federal Executive Council meeting, said the guarantee which is a Central Bank of Nigeria facility, is an instrument meant to resolve liquidity problems encountered by GENCOs in the payment to gas suppliers
“NBET as you know, is the government’s own company, that is the Bulk Trader Electricity who buys power from the GENCOS. The liquidity problems that have characterised the market have affected NBET’s ability to deliver on its PPP obligations through the gencos.
“So, going forward, in order to strengthen NBET, CBN is providing a payment assurance guarantee for any energy produced by any Genco, so that the gencos can pay their gas suppliers when they get paid.”
Fashola said the objective is to achieve some stability to the production side of the power value chain and also give confidence to investors who want to come in but are concerned about how to recover their money.
“So, the approval of council was to provide this guarantee for NBET which is a 100 percent government owned company, to pay on a monthly basis, its obligations for energy actually produced on to the grid to the gencos that are its customers” Fashola said.
However, this is not the first time the government through the CBN is coming to the aid of the power sector through intervention funding.
Last year, the CBN provided the power sector N213 billion in intervention funds known as the Nigeria Electricity Market Stabilisation Facility.
Analysts say the sector requires a fundamental retooling, including revising the assumptions on which tariffs were based, keen commitment to diversifying energy sources and carrying out functional regulation.
“The power sector problem is really not access to funds but a combination of bad policies and poor regulations,” Taiwo Oyedele, head of tax at PwC told BusinessDay when the idea was first mooted.
Joy Ogaji, executive secretary, Association of Power Generation Companies (APGC) highlighted other concerns, “The shortage of natural gas, worsened by increasing vandalism of gas pipelines and diminishing gas plants.
“Gas constitutes about 40 per cent of wholesale electricity tariffs in Nigeria. There is also the need to address the difficulty in accessing foreign exchange,” she said.
At the time of acquiring power assets in 2013, the exchange rate was N198 to the dollar, now it is in the neighbourhood of N500 creating cost and revenue challenges for many power sector operators.
“Some of the discos, I do not see seriousness from them,” says Tony Elumelu, in a recent interview with CNBC Africa, “People who have capacity should have owned the discos but now we must respect property rights, you cannot just go and take, I would not support that.”
The Discos have failed to collect power sold to customers and have huge debts which they have also blamed mostly on government departments and ministries.
Fashola said the approval by the Federal Executive Council shows how much confidence they repose in the sector.
By Elizabeth Archibong & ISAAC ANYAOGU
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