Banana Island Residents Seek Resolution of IPP Dispute

Power-plant-1

Residents of the elite Banana Island in Lagos say their leaders have an obligation to pursue an early resolution of the dispute which has left the power plant installed in the enclave idle for over a year, while they bear the burden of rising diesel bills monthly.

The $10m gas fired plant was built by GELMAK limited under a build, own, operate and transfer financing structure in which the company fully funded the installation of the six megawatts plant that is scalable to 15MW once demand rose.

Several residents contacting BusinessDay by phone or email since the newspaper broke news of the dispute yesterday, were shocked to learn that the plant had been completed and that it was left idle while they continue to carry the burden of an escalating energy bill, especially now that diesel price has risen to N215 a litre.

Independent analysis done for BusinessDay showed that residents of the estate can save as much as 52 per cent of their current energy bill, outside the cost of owning a generator, if they were supplied power from the GELMAK IPP.

“It is shocking that this happening,” said one prominent resident. “There is a reputational issue here which paints the estate in bad light and then there is also the economic value that can be had with an early resolution of this dispute. It should not be said of us that we signed a contract from which we just strolled or are seeking to stroll away.”

Another resident who was taking diesel supply when a BusinessDay reporter visited the estate yesterday, acknowledged that he had not been attending resident association meetings but he said that “did not derogate from the obligation of the executive to be mindful always of the overall interest of those they were elected to serve.”

According to him, “we are forced to buy power from BIPORAL and if this is the Banana estate that they say it is, why do I have to own two generators, maintain them regularly, buy diesel to run them and see what diesel does to the whole place.”

In the last one week, BIPORAL, the estate management organisation which runs a budget of a whopping N500m annually and funded by collection from residents, has written two letters to GELMAK in which it sought to be given more time to return to the negotiating table.

BIPORAL in a letter of August 3, 2016, authorised by its chairman, Chudi Ubosi, acknowledged an April 18, 2016 letter from the owners of the IPP but said “the delay in responding to your letter is due to the lacuna created within the Utility committee (which is responsible for overseeing utilities in the estate), until it was recently re-constituted.”

BIPORAL will not say why it suddenly had to re-constitute its utilities committee but it said, “we are confident that a resolution will be reached at the end of the day.”

On August 5, BIPORAL wrote another letter to GELMAK after the company gave notice to commence legal action and in it, the residents association will not commit to a timeline for resolution.

“Once again, we wish to reiterate our resolve at achieving a mutually beneficial resolution of this issue within an outcome that will present a win win for all the parties. Our response to your letter is with all sense of responsibility, and devoid of any dependence on your deadlines on when you seek legal recourse, which we believe is at your discretion.”

According to contract documents seen by BusinessDay, in 2013, Gelmark agreed and undertook to build a plant to generate and distribute electric power for the exclusive use of BIPORAL, for 15 years under a Build, Own, Operate and Transfer, (BOOT) investment structure.

However, in a shocking move after the installation of the power plant was completed, BIPORAL declared as illegal, the contract which they signed a year earlier on the grounds that GELMAK had no license from  the Nigerian Electricity Regulatory Commission (NERC) and that the contract terms violated provisions of Electric Sector Power Reform Act (ESPRA) and Multi-Year Tariffs Order (MYTO) made by NERC.

Gelmark in a January 8, 2016 response, refuted these claims, stating that the Electricity Power Supply Agreement (EPSA) with BIPORAL was not entered into in violation of any law in Nigeria or in disregard of any known or existing process in BIPORAL and that some of the members of BIPORAL management with whom the negotiations took place are in the current exco of BIPORAL Management now questioning the transaction.

“The GELMAK IPP was established following due diligence and is not in breach of any process in place by BIPORAL for the engagement of our services or investment. The transaction was negotiated by the entity and representatives empowered and authorised to do so on behalf of BIPORAL,” states the letter signed by Gbenga Adeyeri, GELMAK’s deputy general manager, commercial and fuel operations.

The ESPRA 2005 mandates that a power asset owner is required to obtain a requisite license, a duty GELMAK says falls squarely on BIPORAL who owns the asset according to the EPSA entered into by both parties.

A surprised Federal Ministry of Power, Works, Housing and NERC desperate to get every available power in Nigeria into homes and offices, have not condemned parties to the Banana island transaction or impugned the integrity of the contract signed by BIPORAL and Gelmark.

In two separate letters dated February 25, signed by Louis Edozien, a permanent secretary, from the Federal Ministry of Power, Works, Housing and made available to BusinessDay, the ministry commended the arrangement and called for urgent but amicable resolution. BIPORAL’s chairman and property magnate Chudi Ubsoi told BusinessDay he did not get the letters.

BusinessDay’s cost/benefit analysis which assumed 85 percent power availability from Eko Disco at N33/kWh inclusive of a of N4/kWh BIPORAL levy, an average 5-bedroom house on Banana island expends over N60,000 for public power and must spend an addition N150,000 per month for own power from a 27-Kva generator at a diesel cost of N170/litre.

GELMAK claims and analysis independently done by BusinessDay show that this same average household will be saved as much as 52% of its current energy bill if the dispute is resolve and supply provided by the IPP and this is on the basis of a N54/kWh IPP charge of N40 plus BIPORAL levy of N4/Kwh and agreed Eko Disco charge of N10/kWh for its distribution assets in the island.

This newspaper’s own survey shows that average monthly cost of power from Eko Disco and diesel cost amount to N199,977  monthly while the proposed combined GELMAK tariff stands at N96,012, translating to 52 percent savings for the residents.

 Source

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