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Ogaji: Power sector grinding to a halt due to debts

By Roseline Okere
08 July 2018   |   4:12 am
About 3, 000 megawatt (mw) is idling away while the Transmission Company of Nigeria (TCN) and distribution companies (Discos) are bandying words.

Executive Secretary of Association of Power Generation Companies (APGC), Dr. Joy Ogaji, told ROSELINE OKERE, Assistant Editor, Energy and Solid Minerals, in this interview that electricity distribution companies are focusing attention on high profile consumers thereby neglecting low-income earners.

• Discos Unfair To Low-profile Electricity Consumers

The country is practically in darkness, but many power generation companies (Gencos) are complaining of idle capacity. Exactly how much power is idling away as a result of this menace?
About 3, 000 megawatt (mw) is idling away while the Transmission Company of Nigeria (TCN) and distribution companies (Discos) are bandying words. In a situation like this, it is difficult to know the true position of things. So, what I have suggested to government, if it is really willing to solve the problem is to conduct a stress test in order to know everybody’s capacity. The stress test is simple like testing your blood pressure with a blood pressure machine. When it is mounted on you and your blood pressure is reads 145, you cannot thereafter claim that your blood pressure is 120 after everyone has seen what the machine came up with. So, it is for the government to conduct a stress test on generation, transmission and distribution, then the truth will be out there for Nigerians to see.

The last stress test was conducted in 2013 by the presidential task force and as at that time, the country’s distribution capacity was about 4, 600mw, while that of transmission was about 4, 500.

Now the minister of power, works and housing, and the managing director of the TCN are saying that the company’s capacity has increased to 7, 000mw and the generation companies are questioning that claim. If truly the capacity has increased, why is it that 50 per cent of our capacity is still stranded? We have played this hide and seek game for too long and the consumers are the ones suffering. More often than not, the Gencos generate power, but do not have the capacity to transmit and distribute it to the final consumers. All these efforts end up being wasted, and this is the basic dilemma that the industry faces.

NBET, Discos and Gencos are in an intricate web over payment for power supplied. Is there an end in sight to this brewing discord?
You must take cognizance of the fact that Gencos and Discos are two major players in an industry that is complex, diverse and directly sensitive to both the economy and the people of Nigeria. And for that matter, they are at two extremes- generation and distribution, likewise the consumption. It is good to understand clearly how electricity tariff is fixed. Electricity tariff is calculated putting into consideration the low and high profile customers. I think the Discos are not being fair by saying that electricity should only be sent to the high profile customers, while the low profile customers suffer. The Discos often give excuse of huge unpaid electricity bills by the military and customers in general.

I think they should adopt creative ways of recovering their debts from customers. We have even suggested to Discos to employ debt recovery staff, but they always complain of lack of fund.

There have been blame games being played by the various players in the sector, but it does not matter whose voice is loudest. NERC through its regulations have earmarked clearly what each of the players is entitled to. The onus now lies on NERC, the regulator to play its role as the impartial umpire to monitor and ensure efficiency. The issue of everyone crying wolf should be fast gone. The truth is, the power generation companies have, in keeping to the terms of their contract, generated power, which have been sold by the distribution companies.
We have a contractual relationship with the bulk trader and what we are advocating is for the Nigerian Bulk Electricity Trading (NBET) to keep to the terms of the agreement and pay us in full. We are not debt collectors. We have kept to our own part of the bargain, notwithstanding the challenges. We do not have any contract with the Disco yet, in order to ask them to pay us, rather we have a contract with NBET, who is the wholesaler in this market with a guarantee to pay us 100 per cent.

However, it will be difficult to survive under the present condition and the high debt profile of the Discos is inhibiting our businesses. If Discos who have a contract with NBET have refused, or are unable to pay for electricity taken and sold, we are not parties, hence we cannot be debt collectors. NBET should put a firm and default proof mechanism in place to make the Discos pay.

Gas suppliers allege that Gencos are not paying for gas supplied. What is responsible for this indebtedness?
Gencos are meeting their gas obligation, but as you know, it is a value chain. The NBET is taking power from us, but only paying for about 20 per cent of the total energy supplied. So, Gencos pay 20 per cent of the amount to the gas suppliers, but the gas suppliers are seeing themselves as different from the sector’s value chain when in the real sense they are part of the value chain. So, I have met with the gas association and I have told them that we need to collaborate to find out how best we can influence regulation and policy to make sure that they pay us.

Gencos are like the money collectors because 85 per cent of energy generated goes to the gas suppliers. So, when the Gencos get N50, about N25/N30 in some cases go to the gas supplier and this made the generation companies more of money collector.

I have stressed the need for us to collaborate so that government will see that it is serious a matter that needs its urgent attention. We have a contractual relationship with the bulk trader and what we are advocating is for NBET to keep to the terms of the agreement and pay us in full.

It should be noted that we are not debt collectors, and we have also continued to keep to our own part of the bargain, notwithstanding the challenges we are facing.

What is the true picture of Genco’s indebtedness to gas suppliers?
Gencos are owed about N1 trillion. So, out of that N1 trillion, about 70 per cent belong to gas suppliers. We have had serious engagements with the gas suppliers through the gas aggregator (GACN) to lessen related challenges within our control. We believe that this will ensure that our gas supply does not suffer any fatal disruption as necessary to balance the generation within this period.

This does not change the fact that we are almost grinding to a halt due to the heavy debt burden. Most gas suppliers now do pay-before-service and the electricity market is only remitting about 30 per cent. Most of the Gencos can’t operate all their machines; it depends on what they can pay. We are in that state, a precarious and pitiable state.

Another thing is that Nigeria bank’s exposure to the power sector is very high. Do you still get loans from bank despite Gencos’ rising debt profile?
There are a lot of challenges. I have put out a lot of publication where I have told government that our lenders are blacklisting us. We are not able to repay the funds we took from the banks and the Central Bank of Nigeria (CBN) is telling banks not to release more money to the power sector because we are not viable/ bankable. So, this is affecting us. We cannot expand capacity and we cannot develop new projects. The current situation does not allow the power generating companies to plan and increase capacity because the grid is not capable of taking power that is being generated.

So how much do Gencos owe the bank?
I can’t really tell you how much we owe the banks, but government is aware of it. The lender’s entire documents are with the government.
There is this World Bank fund for power sector? How has this help to tackle the issue of funding in the sector?

That is the power sector recovery plan. I think you need to investigate it because it is in shambles. The Gencos have business plans, which most of them have exceeded; they have worked on other expansion plans, which will be implemented as soon as the liquidity situation improves. Raising funds for expansion and construction of new plants often presents a challenge. Slow execution of PPAs is another challenge that hinders Gencos from raising required funding. Since power is the live wire of the nation, we are watching out for what plans the government will come up with to ameliorate the current quagmire in the electricity value chain. We want government to know that we are willing to work with it to arrive at an amicable solution

To what extent would government intervention help in tackling the mounting challenges in the sector?
Well, government has a lot of roles to play in the power sector. I think the Federal Government should review the current tariff system. It should allow the market to run itself. There is a lot of political interference and politics in the sector.

The Minister of Power, Works and Housing announced the Eligible Customer regulation recently. What is the position of the Gencos concerning the new policy?
A lot of Gencos are in support of it and we have signed about nine power purchase agreements with eligible customers. We are interested and we are pushing for it. We are targeting the industrial sector of the economy, which has been complaining about the impact of irregular electricity to their operations.

Declaring the eligible customers does not mean it is only the Gencos and Discos that must become competitive, even the TCN has to become competitive and deliver on contract. When TCN defaults by not wheeling available capacities, it should be held liable. It is going to be a contractual framework because NERC is not part of the activity, but will only register the participants after they meet the requirements, which it is working on.

Discos are actually able to get power through this arrangement on the grid. If they have more customers and are not getting enough due to the strict national grid allocation, they can ask for extra power. In that case, a Disco will need a bilateral contract, not with NBET but with a Genco, and the Transmission Company of Nigeria being the third party.