Electricity: How to Avoid Imminent System Collapse

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An imminent system collapse looms in Nigeria’s power sector owing to its current weak grid system, acute shortage of gas occasioned by incessant vandalisation of pipelines, and a huge debt profile by both distribution and generating companies. The trend is threatening the operations of the power producing companies.

In recent months, the managers of the power generating companies have lamented that the huge debts estimated at over N140 billion is affecting their ability to carry out regular Turn Around Maintenance (TAM).
Prior to now, power generation which had peaked to 5,074mw in February this year, dropped to about 4,244mw as at September 27, 2016. Though experts put the nation’s electricity demand at 10,000mw.

Some stakeholders who spoke to Daily Sun said if government fails to step in and take urgent measures to address the burning issues, the stability or improved power supply enjoyed in some parts of the country could be cut short and the nation may return to its dark past where both domestic and industrial users of electricity had to rely on generators.

Mounting debt profile
In August 2016, six electricity power generation companies across the country threatened to declare force majeure over a N140 billion debt for power generated and not paid for.
Force majeure is a contractual and legal announcement, which is used to declare the inability of a party to meet up with a contractual obligation with another party in business.

The six power generation firms, including Egbin Power Limited, Transcorp Power, Shiroro, Geregu, Sapele and Kainji/Jebba, are being owed the N140 billion by Nigerian Bulk Electricity Trader (NBET), a wholly owned agency of the Federal Government. This is so because NBET purchases electricity from the generating companies through Power Purchase Agreements (PPAs) and sells to the distribution companies through vesting contracts.

A further breakdown of the N140 billion debt profile, which are financial obligations from the Central Bank of Nigeria (CBN) and NBET showed that Egbin Power Limited is being owed N68.71 billion; Transcorp Power, N28.29 billion; Shiroro, N9.66 billion; Geregu, N7.975 billion; Kainji/Jebba, N20.94 billion and Sapele, N9.90 billion.
But NBET, through its General Manager and Head, Power Procurement and Power Contracts Management, Mr. Longe Yesufu Alonge, said the agency paid N186.7 billion to the GENCOs with only about N156 billion remaining. It said the company made the payment of N186,556,636,647 from February 2015 to April 2016, while the outstanding payment to the GENCOs from February 2015 to April 2016 is N155, 768, 549, 056.

Alonge pointed out that the payment performance of NBET from February 2015 to April 2016 was 54.50 per cent and not the average of 40 per cent being claimed by the GENCOs. He also said that NBET paid the sum of N21 billion from its capitalisation to reduce the debt it owes the GENCOs.
He further explained that the company has not paid the outstanding due to the challenges in the power sector. But the GENCOs said the last payment from NBET was on July 17, 2016 as against the April 2016 date claimed by NBET and covered 28.60 per cent of April invoice, adding that the payment was made 78 days after due date of invoice, as opposed to a maximum of 45 days contractually.

On the distribution arm of the power sector value chain, the 11 distribution firms in the country had said in May, that they were being owed about N58 billion by the Ministries Departments and Agencies (MDAs).
Also indebted to the Discos for electricity supplied to them are some of the 774 local government secretariats, as well as the police and paramilitary barracks in the country.

Gas-to-power constraints
To achieve a robust economy, the critical and foundational problem of lack of electrical power must be solved first. This is because not having power means having no economy, and to get power, the country must address the problem of gas production as 80 percent of current and future power generation is based on gas fired power plants, said the Managing Director of Frontier Oil Limited, Mr. Thomas Dada.

The most critical of the four primary problems is vandalisation of oil and gas facilities and infrastructure. Vandalisation is a short-term hyper priority problem because if you have zero production, you cannot talk about illiquidity, price or securitisation. I strongly believe that the vandalisation problem will soon be solved as the government is now taking the matter very seriously.

Less than two years ago, vandalisation was not a critical issue. Today,  destruction of oil and gas facilities and pipelines is topical and has brought the industry and the power sector to its knees. Dada explained that the challenges of pricing and payment have made the entire gas-to-power value chain in Nigeria risky and unattractive to investors. He said the crisis of acute power shortage in the country was the culmination of a number of challenges, some of which had lingered for more than 40 years and others of a more recent nature, which were allowed to fester unchecked. Thomas said gas prices in Nigeria had been relatively low compared to markets around the world for more than 40 years, making the gas business unattractive compared to the oil especially for International Oil Companies (IOCs).

“Now, the situation is only marginally better. Gas prices are still below the levels that will make gas projects attractive and readily bankable and gas off-takers are still not paying for gas consumed as and when due,’’ he lamented.

What should be done
Minister of Power Works and Housing, Mr.Babatunde Raji Fashola in addressing the knothy issue, said one of measures aimed at breaking up the country’s large dependence on power generation from gas-fired plants, would be massive investment in hydro power plants. Fashola said the government had started working on hydro power plants, adding that in future, it would be impossible to hold Nigeria to ransom as a result of vandalism of gas pipelines.

“We have seen from events that started around February 14 this year, repeated acts of vandalism of our gas pipelines that render us clearly vulnerable to one source of fuel for our energy development. That has challenged us to develop options and alternatives like solar in particular, and of course, hydro power plants in more quantitative response. So, we will be accelerating work on projects like Gurara Hydro Power Plant – phases 1 and 2; work has started on Zungeru Hydro Power Plant. “We will also be accelerating work on Mambila Power Plant, which will give us the biggest single electrification source over a period of seven years that it is estimated to have it concluded. So, for us, this is a journey of diversification, a journey of electricity security for Nigeria and it is a journey that will ensure that in future it will be impossible to hold this country to ransom by controlling any particular source of fuel for electricity.”

On her part, Managing Director of Benin Disco, Funke Osibodu, said CapEx spending has to increase to improve power supply, especially for transmission. Similarly Managing Director, Oando Gas and Power, Mr. Bolaji Osunsanya, said a new commercial structure, which will guide key gas and electricity transmission infrastructure has to be promoted; it must be a PPP model that will encourage entrants into the fold. On the other hand, he disclosed that gas specific bid rounds to develop and produce marginal discoveries for the domestic market have to be embarked upon. Osunsanya maintained that the National Electricity Regulatory Commission (NERC), which regulates the industry must refrain from policy somersaults while the government should further strengthen the commission to perform the role of a competent and firm overseer.

Stakeholders at a recent power summit in Lagos submitted that to enjoy stable power an investment of about $7.5 billion would be needed for transmission upgrade, a segment that has been described as the weakest link in the power sector value chain. On his part, the Managing Director and Chief Executive Officer (CEO) of Egbin Power Plc, Mr. Mr. Dallas Peavey, urged the government to pay its bills, adding that, while everybody is blaming the distribution companies; the government needs to pay its bills too.

Source: The Sun

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