By Adewale Sanyaolu
Business owners in the country may continue to pay more to power their operations as gas producers have threatened to declare force majure over the inability of Generation Companies (Gencos) to settle outstanding arrears of over N200 billion for gas supplied to power plants.
Force majeure is a contractual and legal announcement, used to declare the inability of a party to meet a contractual obligation with another party in business.
More worrisome is the fact that about 80 per cent of the country’s power generation comes from gas while the remaining is from hydro power plants.
Stakeholders who spoke to Daily Sun on the prevailing challenges urged the Federal Government to step in by taking urgent measures to address the burning issues, restore stability of power supply to ensure that parts of the country cut off from power are recommended. Without such action, the nation may return to its dark past where both domestic and industrial users of electricity had to rely on generators.
‘‘Some of our members have suspended further supply of gas to thermal power plants while others are contemplating to do so anytime soon,’’ said the Publicity Secretary of Nigeria Gas Association (NGA), Mr. Frank Uzuegbunam.
Avoerting impending power sector collapse
To achieve a robust economy, the critical 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 per cent 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 vandalism of oil and gas facilities and infrastructure. Vandalism is a short-term hyper priority problem because if there is zero production, you cannot talk about illiquidity, price or securitisation. I strongly believe that the vandalism problem will soon be solved as the government is now taking the matter very seriously,” Dada said.
Less than two years ago, vandalism 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.
Partner, bloomfield Law Practice, Mr. Ayodele Oni, said the proportion of energy sourced from gas supply is estimated at around 75 percent to 80 percent of the total energy distributed in Nigeria, compared to energy sourced from hydro power.
‘’Thus, gas shortage adversely affects 75 percent of Nigeria’s power source. It is pathetic that companies spend 40 percent of their running cost on self-generation due to the current state of the power sector. With more gas problems or a total shut down, things would get much worse.
He explained that the shortfall created by the under generation of electricity (especially due to shortage in gas supply), has led to increasingly worrying effects on the Nigerian economy.
According to him, one of such multiplier effects can be seen in the ever increasing costs of so called ‘private’ power generation to Nigerian homes and commercial activities, adding that the consequence of this is seen in the difficulty of doing business in Nigeria, with erratic power supply, rising costs, the unpredictability of day to day operations, inability to forecast and general unreliability.
‘’A most recent example of this was shown in the Entertainment Industry, especially involving the decision of M-net Africa in choosing to produce the show ‘Big Brother Nigeria’ in South Africa as opposed to Nigeria, due to the mammoth expenditure it would have incurred in a decision for local production due largely to the cost of generating electric power.These developments have shown an alarming state of affairs, and an impetus on the current administration to develop productive means of countering such staggering effects on the day to day lives of Nigerians,’’he lamented.
Bleeding Gencos
Executive Secretary, Association of Power Generation Companies, Dr. Joy Ogaji Ogaji, however, said the Nigerian Bulk Electricity Trading (NBET) Company Plc is to blame for the problem, saying, Gencos don’t really have any direct relationship with Discos at the moment because Gencos are meant to generate power, as government brought NBET as a wholesaler, to all the power being generated by Gencos for sale to the Discos.
She explained that the onus lies on NBET to collect the money from the Discos, stressing that the claim on whether Discos are remitting money or not should not be the problem of the Gencos, but that of NBET.
‘‘Government told us that NBET is properly capitalised and has enough money to meet all of the Gencos’ payments. But unfortunately, NBET has not been able to do that,”she said.
On his part, Chairman of Transcorp Group and United Bank for Africa (UBA), Mr. Tony Elumelu, said Transcorp Power Holdings is owed almost N50 billion, adding that, “when the invoice for January is included, Transcorp would have been owed almost N54 or N55 billion. How do you survive in business like this? How? Other Gencos I know are actually dying. We are struggling because of our diversified resource base, what of others? Something urgent and drastic must be done. It is as urgent as yesterday.
“The truth is, Transcorp power, as a key operator in the sector, is struggling. And if we are struggling, you can imagine what others are going through,” said Elumelu,
The latest N200 billion debt figure from NGA depicts a sector haemorrhaging and gasping for breath. In August 2016, six electricity power generation companies across the country put their debt profile at over N140 billion for power generated and not paid for.
Thomas captured the state of the sector and that of stakeholders succinctly when he said, ‘‘but the gas-to-power value chain itself is terminally sick and in the emergency ward infested with a number of crippling diseases chief among of which are the primary diseases of vandalisation of oil and gas facilities, sector illiquidity, price and securitisation challenges as the immediate major infections and lurking behind these monsters are the secondary diseases of inadequate and dilapidated power transmission and gas distribution infrastructure, low economic returns for gas projects and lack of access to gas reserves by those willing to develop them if the terms and conditions are right,’’ he said.
In August last year, six power generation firms, including Egbin Power Limited, Transcorp Power, Shiroro, Geregu, Sapele and Kainji/Jebba, raised the alarm that they were being owed about N140 billion by 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.
Aside the NBET, the Niger Delta Power Holding Company (NDPHC) recently urged the Discos to ensure adequate remittance to the bulk trader in order to enhance smooth operations of the power business.
The Managing Director/Chief Executive Officer, NDPHC, Mr. Chiedu Ugbo, stated that the indebtedness to his company by the power market as at August 2016 was over N105 billion.
“The total energy invoiced by the eight operational NDPHC plants since they started functioning amount to about N235 billion. But out of this amount, and as at August 2016, we were being owed about N105 billion,” Ugbo said in Abuja recently.
But latest statistics from NGA revealed that the N140 billion debt figure in August had swelled to N200 billion as at December 2016.
According to NBET, in0voices from the 22 power generation plants for September 2016, was N36.49 billion while payment to them based on receipt from the Discos was N8.99 billion, representing 24.64 per cent.
Effect of gas on generation
In the last one month, power supply to households across the country has been on a steady decline with generation dropping to 112.20MW on January 23, as against 2,630.30MW generated on January 23, translating to a loss of 2,518 in three days.
According to the Nigerian National Petroleum Corporation (NNPC) November monthly financial and operations report, electricity generation from the country’s gas-fired plants dropped by 108MW last November.
The gas-fired plants are Alaoji II, Geregu II, Omotosho II, Olorunsogo II, Egbema, Sapele, Omoku, Calabar, Gbarain and Ihovbor II, all of which were built under the National Integrated Power Project (NIPP) scheme.
Others are Omotosho I, Ibom Power, Egbin, Delta, Rivers IPP, Afam and Trans Amadi.
The report indicated further that in October 2016, the gas-fired plants generated 2,452MW as against 2,344MW generated in November, representing a shortfall of 108MW.
The drop in November power generation, according to the report, could be linked to the decline in the November gas supply to gas-fired power plants, which stood at 528 mmscfd as against 562 mmscfd last October.
The quick take
Thomas advised that rather than NBET sitting on about $800 million in the bank while the sector is collapsing, such funds should be committed to plugging the payment shortfalls.
“Though the fund is not enough to solve the total indebtedness in the sector, which is in excess of N1 trillion, it can be used to prevent a total system collapse and a potential domino effect as many Nigerian banks have large exposures to the power and oil and gas sector.
‘‘Coming back to the terminally sick gas-to-power patient in the emergency ward, there is still hope but only if the medical team acts fast, collaboratively and effectively. The associations of Gencos and Discos have been placing full page adverts in the newspapers claiming that the gas-to-power value chain is sick, and if government does not do something drastic very soon, the country would be plunged into darkness. I think we should all take that cry very seriously.
The generation and distribution of power is not a social service. It is a business and it has to be allowed to run as a business but with fair and proper regulation to protect the interest of both the consumers and providers.
However, government must create the enabling environment through clear, consistent, well-articulated and properly implemented policies and regulation. The Power Reform Agenda was an excellent initiative, which is suffering from teething problems. These problems must be attended to urgently and surgically so that the gas-to-power sector does not collapse taking the banking sector and entire economy with it,’’ he maintained.