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Published On: Tue, Sep 6th, 2016

Darkness looms as GENCOs’collapse imminent

Penultimate weekend,   the Nigerian Bulk Electricity Trading Plc, NBET had alleged that it had  paid N186.7billion to Electricity Generating Companies GENCOs adding that  it is only owing them about N156 billion.

Reacting to the claims that it was being owed huge sums by various stakeholders, the General Manager/Head, Power Procurement and  Power Contracts, Nigerian Bulk Electricity Trading Plc, NBET, Longe Yesufu Alonge, said the company has made payment of N186, 556, 636, 647 from February 2015 to April 2016, while the outstanding payment to the GENCOs from February 2015to April 2016 is N155, 768, 549, 056.

He added that “the payment performance of NBET from February 2015 to April 2016 is 54.50 percent not the average of 40 per cent being claimed by the GENCOs. He further averred that NBET has paid the sum of N21billion from its capitalisation to reduce the debt it owes the GENCOs. He explained that the company has not paid the outstanding due to the challenges in the power sector.

An official of the  Central Bank of Nigeria, who  prefers anonymity said that the power intervention fund is not a father Christmas money to be disbursed anyhow , adding that it  has terms and conditions attached to it. He said that any GENCOs which meets the terms and conditions of the facility have due access to draw from the fund. He dispelled the illusion of a national cake.

He admitted that at the last draw down from the fund some of the GENCOs did not benefit because they failed to meet the necessary conditions, saying it was regrettable that some of the  GENCOs just wanted free funds which is not possible anywhere.

The Power Generating Companies weekend said that unless something urgent is done in the next couple of months, Nigeria should be prepared for a total electricity blackout. They said that they are currently running their operations at a huge loss and are barely struggling to survive.

The GENCOs, in a report, blamed their woes on the huge debt, valued at about N140 billion, owed them by some government agencies and some other companies; the declining value of the naira against major international currencies; insecurity and vandalism of gas and power assets in the Niger Delta; shortage in gas supply; low tariffs and absence of critical infrastructure to support power generation.

They said that the combined effect of these would render the GENCOs and their investors incapable of delivering power despite their willingness and readiness to so do. They disclosed that this is leading to a situation where total seizure of operations by GENCOs is imminent.

“The GENCOs now have very limited options: to either shut down operations proactively or be compelled to do so by the current state of affairs in the power sector.  “Much as the GENCOs remain committed to deliver on their power generation commitments, if the issues listed below are not resolved within the next few days, an elongated system collapse will be inevitable,” the GENCOs warned.

However from the document sighted by Financial Vanguard, the lingering epileptic power supply in the country is as a result of cumulative stranded capacity from the GENCOs, which they record daily.

According to the GENCOs’ document, “Several efforts have been made to mitigate these stranded capacities to the barest minimum, but thus far all efforts have been in vain, as the capacity tends to increase rather than decrease.

Out of the 7,856.52 MW, available capacity in the country, only 2,804MW, can be generated, as about 4,991 MW, have been recorded as stranded capacity.”

A breakdown of the power generating situation showed that Egbin, which is the country’s largest power station, can only deliver about 201MW, out of the 880MW available capacity, the remaining 679 MW is recorded as stranded capacity. Transcorp Power Limited, a subsidiary of Transnational Corporation of Nigeria Plc, owners and operator of Ughelli Power Plant in Warri, Delta State, have a stranded capacity of 249MW, out of the 450 MW available capacity.

The data also revealed that Shiroro Power Station, a hydroelectric power plant located at Kaduna River in Niger State, is the only company that has no stranded capacity rather out of the 450 MW, available capacity, the company generate 412 MW, the remaining can be attributed to generation loss.

Geregu and Sapele on the other hand are said to have a generating capacity of, 0 MW and 65 MW as well as 276MW and 55 MW stranded capacity respectively. Kainji/Jebba, it said both Hydro Power Plants in Niger state, with an available capacity of 836 MW, have a stranded capacity of 170 MW, while others have generating capacities of 1,190 MW, and stranded capacities of 3,562 MW.

Furthermore, the GENCOs said, they are  not talking about breaking even or making profit, which is a legitimate expectations of any investor, rather they are crying out about their continued operations at a huge loss and the absence of critically required support.

They said despite their commitment, as seen by their substantial capital investments towards capacity enhancement and continued operations under the suffocating operating environment, they have continued to be stretched.

“As if the intention is to know how far the GENCOs could go before shutting down operations, the response is very simple: Shut down is imminent,” they said.

The GENCOs claimed they have been at the receiving end of the lapses and deficiencies in the Nigerian Power Sector, as well as the seemingly insurmountable challenges of operating within the sector.”

According to them, they have been and do remain far more vulnerable than any other player in the electricity supply value chain, adding that for whatever reason, very little has been put in place to give the GENCOs a legitimate chance of survival based on the realities on ground.

“While the GENCOs have been carrying the burden of ensuring that the power sector remains functional, and hoping that the obvious gaps, deficiencies and threat to their existence would be addressed, they are presently cringing under the excruciating pains of carrying this burden. Given that life is literally being snuffed out of the GENCOs, they owe all stakeholders and the generality of Nigerians the duty to cry out,” they said.

The GENCOs accused the Central Bank of Nigeria of being complicit in their woes, stating that the much welcomed intervention   by the Central Bank of Nigeria (CBN) to bridge the gap, between the receivables and actual receipts, had been bogged down with bureaucracy typified by long drawn processes, which have ensured that after two years of the said intervention, not much impact has been made on the power sector.

As at today, the GENCOs claimed they have not received full disbursement of the intervention fund from CBN, and there is absolutely no clarity as to when remaining payment tranche will be completed. They lamented that the non-payment of the stabilisation fund as at when it was approved two years ago has impacted on its value as at today.

In the area of gas shortage, the GENCOs lamented the non-availability of gas, to power their plants, stating that the rising cases of pipeline vandalism and insecurity around gas producing and transportation assets have further diminished the supply of gas to generation plants, thereby crippling the system.

The GENCOs said, “Since the takeover of the power generation assets by GENCOs, availability of good quality gas has always been a major issue. However, in the past six months, the situation has taken a turn for the worse.

The rising cases of pipeline vandalism and insecurity around gas producing and transportation assets have further diminished the supply of gas to generation plants, thereby crippling the system.

“All the issues surrounding gas infrastructure have resulted in a cumulative stranded capacity of 5,000 megawatts (MW) being recorded every day. “The impact of this is better appreciated by the fact that the total power generation capacity as at today should have been close to 8,000MW as opposed to 2,800MW.  The impact of this on the Nigerian economy cannot be overemphasised.

Commenting on the impact of declining value of the naira on their fortunes, the electricity generating companies said, “When the GENCOs acquired the power assets, the exchange rate of the United States Dollar to Nigerian Naira was $1/N157.   About three years down the line, the cost of the equipment needed to carry out repairs of turbines and associated auxiliaries remain the same on the international market but has increased by about 100 per cent in the last three years arising from the devaluation of the Naira.

“Given the fact that majority of parts and equipment procured by the GENCOs are sourced from outside of the country, this has had significant impact on the GENCOs’ purchasing power and inevitably on their ability to upgrade and maintain their various power plants.

“Furthermore, as at the time of paying for the power assets in 2013, some of the acquisition financing were sourced by the GENCOs in dollars, to the knowledge of appropriate government and regulatory agencies.

The cost of repaying those facilities has significantly increased by about 100 per cent in the last three years arising from the devaluation of the Naira as well. This has resulted in additional huge losses with suffocating effects on the GENCOs.

 

“It is however important that there is special consideration for foreign exchange allocation to support the power sector.”  On the issue of tariffs and inadequate infrastructure, the GENCOs said, “The market rules recognize three critical factors that drive tariff; exchange rate, cost of inflation and gas prices. In recent times, these three drivers have significantly risen by over 100 per cent without commensurate increase in tariff.

“This has ensured that cost-reflective tariffs, which are clearly provided for in the Electricity Power Sector Reform Act, has not been achieved till date. For the GENCOs, the closest the market has got to this, is the current tariff under the Multi-Year Tariff Order (MYTO) 2015, which, though not fully cost-reflective, was a welcomed development towards enhancing the capacity of GENCOs to discharge their obligations.

“The GENCOs’ position is that they cannot survive, thrive or meet their power generation obligations and expectations under the present state of things. It is important that all stakeholders should note this. It is critical that these issues be addressed immediately. This should be of utmost concern to all market participants

“The GENCOs also use this opportunity to send an SOS in respect of transmission infrastructure particularly as it relates to the safety of our operations and equipment. There is a need to significantly invest in the transmission sector in order to ensure an equal level growth across the industry. As it stands now, the generating sector has already witnessed a mishap due to inadequate transmission infrastructure which has cost damage to generating equipment valued at billions of Naira.”

“To this end, the GENCOs expressed optimism that the situation can only be saved if solutions are immediately implemented to address the issues highlighted above.

According to the GENCOs, while they remain committed to the Nigerian project, this commitment can only be meaningful when the critical factors necessary for the continued existence and thriving of the GENCOs and the power sector are addressed and fixed, noting, however, that it is extremely urgent that this is done now.”

 

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