FG Totters Towards Solving Power Crisis •Operators Groan Under -Debts, Poor Funding, Bad Policies

By on April 26, 2017


Views: 367


Interestingly, the country’s Power Sector came to the fore at the annual World Bank/International Monetary Fund (IMF) spring meetings in Washington D.C., United States.

Reason, the Minister of Power, Works and Housing, Mr Babatunde Fashola was at the summit to sell his idea on how to revamp the country’s ailing power sector.

Reports showed that, the World Bank and some multilateral agencies in Washington applauded Fashola’s Power Sector Recovery Plan and offered to render financial support.

The Minister of Finance, Mrs. Kemi Adeosun, who headed Nigeria’s delegation to the summit, quoted the World Bank and IMF as saying that the power sector recovery plan of Fashola was realistic.

In a meeting with the agencies, Fashola was said to have presented the power plan, which was approved by the Federal Executive Council, FEC, about a month ago, and secured the support of the financial institutions.

According to Adeosun, at a press briefing in Washington, “what the power sector recovery plan has done is to look at all the problems really honestly. The multilateral agencies have looked at the plan we have put together and they like it because, as they said it is realistic.

“We have really dimensioned all the issues from GenCos to DisCos to end users to metering, and one thing that everybody is very clear of is that it is a big problem.

“So, it is a large problem that will take some time to solve, but the most important thing is that there are milestones of what we are expecting to see.

“The multilateral agencies have pledged their support financially, because those investments are tied to certain results. For example, if you look at the issues around the transmission, power is generated, but can’t be evacuated because the transmission capacity is not there. So, just investing in the transmission capacity in certain areas will change the power outlook.

“From the impression I got, from the meeting, they were optimistic that if we actually implement what we’ve planned, and the Minister of Power, Works and Housing was very emphatic that he is going to drive the implementation.

“I feel quite optimistic that it is realistic. We are not saying throw away your generator by December, it is a realistic plan, but it is going to take time.

“If we have power, a lot of factories that have closed down can re-open. So, it ties with our Economic and Recovery Growth Plan.”

Probably, the said foreign lending agencies were carried away by the heat of the moment; or maybe, they are yet to find out that it is the very Federal Government, that presented the supposedly, ‘brilliant proposal’ that will undo whatever plan is there in the proposal.

Even, Fashola, perhaps, is yet to come to terms with the reality that obtains in the Power Sector.

Very recently, the Association of Power Generation Companies of Nigeria (APGCN), complained that its members are operating at a loss, as the percentage of revenues received do not cover their operating costs. As a result, the generating plants can no longer sustain their operations, due to high outstanding debts.

Besides, the association appealed to the Transmission Company of Nigeria (TCN), to improve the reliability of the power Grid System to avoid incessant blackouts, and incidences of deemed capacity (stranded generation); and maintain grid-acceptable frequency limits of between 49.5Hz and 50.5Hz at all times.

If adequate measures are not taken soon to mitigate the crisis, the generation companies (GenCos), warned that they might soon run out of funds to maintain their generation capacities, and also to produce the much-needed energy for the nation.

The Executive Secretary of the Association, Joy Ogaji, recalled that “History has shown in the past three decades how generating plants were run right to the ground by the defunct National Electric Power Authority /Power Holding Company of Nigeria, without paying attention to scheduled maintenance and overhaul.”

She said generation companies are calling on all relevant government agencies to, as a matter of urgency; facilitate the payment of the outstanding invoices.

The association maintained that “the total outstanding invoice on deemed capacity must be added to market revenue gap for payment,” as the legacy GenCos were yet to be paid the deemed capacity since taking over the assets in November 2013.

Ogaji noted that payments for deemed capacity over this period have run into billions of naira that would have been used in maintaining the generating plants, and paying for already purchased/contracted gas and services.

She further stated that although the GenCos can increase their available capacity effectively, the System Operator has the grid right to instruct any GenCo to reduce or cut down on its nominated capacity. She added that System Operator is justified to issue such instructions to safeguard the grid from partial or total system collapse.

Ogaji noted that for a GenCo to nominate any capacity, it means effective commitments has been made as per gas for thermal plants and other equivalent necessary overhead costs which applies to both thermal and hydro plants.

According to her, costs associated with deemed capacity are legitimate cost that must be recovered.

“When there are restrictions on the grid either due to load rejection on the part of the DisCos or congestions on the transmission network to evacuate available capacity, the System Operator instructs the GenCo to ramp down on its nominated capacity and the GenCo must comply."

She said: “In global electricity markets, compelling a generating station to reduce its generation in order to maintain the power grid attracts financial costs, as contained in power purchase agreements (PPAs). It is not different in the Nigeria electricity market, which clearly says in the Transitional Electricity Market (TEM) Order No. NERC/14/0008, Section 16B paragraph 1 & 2 of 2014 that a generator will be paid for the generation capacity utilised to deliver electrical energy, plus deemed capacity. Where “deemed capacity’’ is capacity that would have been delivered but for the System Operator instruction to the said generator to de-rate or reduce its capacity to achieve grid balance and stability.”

She, however, pointed out that compelling a generator to ramp up and ramp down at unscheduled time affects it equivalent operating hours, and stresses the internal parts of the machine thereby reducing the plants’ lifespan.

Also, investors in the Nigeria’s power distribution sector have kicked against the Federal Government’s plan to escrow revenue accounts of distribution companies (DisCos). The investors insisted that any attempt to go ahead with this plan is tantamount to nationalization or expropriation of the DisCos.

The Executive Director, Association of Nigeria Electricity Distributors (ANED), Sunday Oduntan said the government had backslid in the N100 billion subsidy payment and other privatization requirements. 

ANED noted: “To date, the government has not met the privatization transaction foundational requirements of providing N100 billion in subsidy to the sector. Indeed, any attempt at escrowing our accounts runs counter to the objectives of the National Electricity Power Policy, 2001 (NEPP) and the Electric Power Sector Reform Act, 2005 (2005), of a private sector-owned and managed electricity sector. 

“It would also send very wrong signals to domestic and international investors that Nigeria is not fully open for private sector investment and that we are still partial to the old habits of nationalization, preventing the injection of the cheap and sorely needed capital that is critical to the rehabilitation and improvement of electricity infrastructure.

“You cannot have a, supposedly, private sector-owned and managed business in which the government now seizes control of its revenues.  It is a contradiction in terms and practice.  The same principle applies to any consideration of regulations or government action that intrudes into corporate responsibilities of procurement, financial management or personnel management.” 

In particular, relative to procurement, the DisCos insisted that they are not aware that Nigerian Communications Commission (NCC) issues regulations to guide the internal procurements of the telecommunication companies. Likewise the Central Bank of Nigeria (CBN) and the Department of Petroleum Resources (DPR), the DISCOs stressed. 

They insisted: “Singularly and in aggregate, such proposed action would endanger the ability of the government to hold the discos responsible for performance, at a minimum, and at worse, amounts to government takeover of the discos. It would, absolutely, preclude further private sector investment in the sector.”

On plans to get DisCos declare their eligible customers, ANED said: “We understand that the idea of Eligible Customer declaration is under serious consideration. Our understanding is that Eligible Customers may only be declared by the Minister when a competitive market exists in the Nigerian Electricity Supply Industry (NESI). 

“Such a market requires the presence and utilization of industry contracts; competition and efficiency that will drive down electricity prices for the customers; and infrastructure that will allow for uninterrupted delivery of power to our customers.

“This competitive market, currently, does not exist. Additionally, while Section 27 of EPSRA provides the Minister with the authority to determine ‘end-use customers’ who shall ‘constitute eligible customers.’

“It also requires that any such determination must be consistent with Section 28 of the same act, which requires that the DisCos must be compensated for any reduction in their ability to ‘earn permitted rates of return on their assets’ or any inadequacy in their revenues, as a result of such determination.” 

On the N800 billion shortfalls in the sector, which had pushed power operators in financial crisis, ANED said: “These shortfalls undermine intervention objectives of the government. 

“Similarly, continued failure to account for the outstanding market shortfalls that are currently in excess of N800 billion will, essentially, mean that the upstream operators remain in financial jeopardy, undermining one of the government’s major objectives for the intervention – increased or improved liquidity.” 

Dearth of competitive market is a threat to the move by the government on the declaration of eligible power customers nationwide, the investors said, demanding compensation for any loss of revenue associated with such declaration. 

On deficiency of Corporate Governance at the DisCo level, the group said: “There is continuous reference to a connection between the DisCos’ performance and corporate governance.  Specifically, failed corporate governance. 

“Again, we believe that this is another deliberate distraction from the issues and the urgent requirement to address the liquidity challenges that we have in the sector.  Our challenge is not so much inadequate corporate governance as it is the failure of the government to meet the commitments that will significantly impact on our ability to meet the requirements of our Performance Agreement with the Bureau of Public Enterprises (BPE). 

“To date, the government has not met the privatization transaction foundational requirements of a) Providing N100 billion in subsidy to the sector; b) Payment of MDA electricity obligations; c) Ensuring that the DisCos have debt free financial books; and implementing a cost reflective tariff, amongst others. 

“All of the aforementioned hold significant value towards the ability of the DisCos to improve their service delivery to their valued customers and not the issue of governance.  Indeed, the issue of the value chain is commercial and not one of corporate governance.” 

The N210.61 Billion intervention by Nigerian Electricity Market Stabilization Facility (NEMSF) has, according to ANED, been labeled, interpreted and surrounded with all manner of erroneous and misleading information.  Of note, ANED added, is that the government, in accordance with the privatization transaction terms, has a representative of its 40 per cent equity on the respective Boards of the DisCos, thereby providing for government oversight and transparency of DisCo operations. 

ANED, stressed that Nigerians “have to be mindful of the reality of over 60 years of an inefficient, poorly funded and managed electricity system that existed prior to the handover of the PHCN successor companies to the private investors.  Significantly, any expectations for the reversal of such a decayed system have to be within the context that, for instance, no power infrastructure investment was made in Nigeria between the eight-year period of 1991 through 1999.

“We note that there remains much more that needs to be done to improve the quality of service delivery to our customers.  As we continue to operate within a limiting cost structure that does not allow the DisCos to fully recover their cost of doing business and make the requisite capital investment that should drive comprehensive improvement in the sector, we remain focused on ensuring that our customers’ electricity supply experience is an improved one.” 

Source cattnews

Posted 26/04/2017 10:31 AM




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