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FG in dilemma over worsening power crisis

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Power Minister, Adelabu apologises for saying Nigerians keep freezers on due to low tariff

There are strong indications that the plan by the Federal Government to improve power generation from the present 4,000 megawatts (MW) to 6,000MW in the next six months, in a bid to end electricity rationing across the country, may meet with everything but success.

Business Hallmark’s analysis of happenings in the nation’s power sector revealed that there is low probability of a drastic step, anytime soon by the managers of the economy, to bring a lasting solution to the lingering problem of gas supply deficit, which has remained a top challenge limiting electricity generation on the grid.

The Association of Nigerian Electricity Distributors, which represents Electricity Distribution Companies, estimates that the country requires 30,000 megawatts of electricity generation to meet its immediate needs.

Nigeria used to produce 5,000 megawatts of electricity, which was far below requirement. However, current data from the Independent Systems Operator indicates that the country’s electricity generation now hovers around 4,000MW. As of August 6, the country’s 29 power plants generated 3,803.60 MW.

The last time Africa’s largest economy generated 5,000MW of electricity was three years ago. A lot of challenges plaguing the power sector have made it underperforming despite currently having a generation capacity of 7,000 MW.

According to the Nigerian Electricity Regulatory Commission (NERC’s) 2023/Q1 report, Rivers IPP with a capacity of 180MW, and Afam VI with 624MW reported gas shortage-induced outages. Similarly, 600MW Shiroro reported outages due to water management to maintain its reservoir through the dry season.

The real issues

Business Hallmark learnt that the generation companies (GenCos) are being heavily owed by the Nigeria Bulk Electricity Trading Plc, which buys electricity through power purchase agreements and sells through vesting contracts to the distribution companies (DisCos), which then supply it to the consumers.

And the GenCos are lamenting that the lack of payment is making it difficult for them to secure gas supplies from upstream producers, who are also owed significant debts.

A top official of a GenCo, who pleaded anonymity said no payment had been made to gas suppliers for January, compounding the liquidity challenges facing the industry.

“There is an insistence on payment by most GenCos for any transaction now due to the persistent liquidity issues coming from inappropriate tariff regime, poor collections and inadequate funding of government subsidies,” the source said.

Last month, the Minister of Power, Adebayo Adelabu, revealed that the debts owed the power companies had accumulated up to N3 trillion. The minister, who gave the figure during a press conference in Abuja, said the amount represents the N1.3 trillion debts owed to generation companies, and about $1.3 billion owed to gas companies over the years.

He said: “We have a legacy debt of $1.3 billion before 2014 to gas suppliers’ companies. At today’s rate, that is close to N2 trillion. If you add the N2 trillion legacy debt to N1.3 trillion owed to GenCos, we have an inherited debt of more than N3 trillion in the power sector.

“How will the sector move forward? Nigerians deserve the right to know and we are working underground to resolve these issues.”

Despite repeated promises by successive governments to tackle these challenges, tangible progress has been slow. Under the erstwhile Muhammadu Buhari administration, the grid collapsed 99 times, despite tranches of financial interventions from the Federal Government. Cumulatively, the sole grid collapsed 222 times between 2010 and 2022, according to The Punch Editorial (12th Feb.2024).

Ironically, at 206.5 trillion cubic feet, Nigeria’s natural gas reserves are among the largest in the world, as the country owns 33 percent of Africa’s total natural gas reserves.

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While Nigeria grapples with generating 12,000MW and transmits 4,000MW-4,400MW, its counterparts, South Africa and Egypt are on 58,095MW and 59,063MW respectively, having constantly explored a diversified mix of energy resources.

According to the NERC, there are 22 grid-connected generating plants in operation, which comprise seven GenCos, five independent power producers and 10 generating stations under the National Integrated Power Project with a total installed capacity of 11,053.6 MW.

However, of the 22 power plants, findings showed about nine of them account for almost 80 percent of generation due to their size and availability.

Analysts say the implication is that the (over) reliance of the grid on the energy supplied by nine power plants may pose a risk to network stability in event of a sudden loss of any of them unless adequate proactive measures, such as spinning reserves, are put in place.

Spinning reserves are backup energy production capacities that can be made available to the system operator (for transmission) within 10 minutes of a power system failure and can operate continuously for, at least, two hours once brought online. It is done by increasing the power generation output of power plants already connected to the system.

Kayode Oluwadare, an energy expert, said. “The major issue over the years has been the unavailability of gas. Large gas-fired power plant projects require power purchase agreements and feed gas agreements before they can secure funding, but the inability of those projects to secure feed gas supply on a long-term basis is a major challenge.”

Although the government had at the beginning of the year agreed to pay electricity subsidies of N1.6 trillion in 2024 to the Nigerian electricity supply industry, just N450 billion was provided for in the budget.

Raising the hope

During a meeting with power sector authorities in Abuja on Monday (March 11), Adelabu described the ongoing electricity rationing across the country as unacceptable, disclosing the government plans to improve power generation from the present 4,000MW to 6,000MW in the next six months. This, he said, would be achieved by paying off substantial debts owed to power generation companies and gas suppliers.

“So what we are looking at is to have an agreement to ramp up to a minimum of 6,000 megawatts within the next three to six months. I know that the highest we ever generated was 5,700MW, about three years ago. That was specifically November, 2021.

“And this 5,700MW was also distributed. If we could achieve 5,700MW at that time, I believe we still have infrastructure to generate between 6,000MW and 6,500MW. In terms of the generating companies, I have no doubt in my mind that the existing capacity can give us 6,500MW once there is stability in supply of gas.

“I’ve been to a number of the generating companies and I confirmed that they have this installed capacity. And a large percentage of this installed capacity is operational, but they are not available because of low or shortage in gas supply. Once there is gas supply, we want to ramp up generation to a minimum 6,000MW”.

The minister, however, issued a marching order to the NERC to withdraw licenses of non-performing DisCos, insisting that the distribution segment remains the weakest link in the electricity supply value chain.

The panacea?

In a bid to find a lasting solution to the challenges, the Ministry of Power in conjunction with the Ministry of Petroleum Resources (Gas) in February set up a ministerial committee towards resolving the crisis.

“In a bid towards finding a lasting solution to challenges associated with gas supply to power generating companies (GenCos) in the country and general improvement across the power sector value chain, Minister of Power, Chief Adebayo Adelabu in conjunction with the Ministry of Petroleum Resources (Gas) has set up a ministerial committee towards resolving the crisis,” Bolaji Tunji, special adviser on strategic communication and media relations to the Power minister had revealed.

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According to the statement, Mr Adelabu said the two ministries should work together to find a lasting solution to the problem, wondering why the issue of gas supply to the power sector was not prioritised in view of the importance of the sector to economic development. He also suggested that payment for domestic gas supply should be denominated in naira instead of dollars.

“If we are serious about the economic development of the country, we need to solve the problem of gas supply today. We should look at the possibility of mandating the gas suppliers to price in naira. The domestic supply is just a fraction of what the gas suppliers supply to the international market, so paying in naira should not be a problem,” he said.

Mr. Adelabu added that in order to further resolve the gas supply challenge, the GenCos must enter a contractual arrangement with the gas suppliers.

“With such contractual arrangements with gas suppliers, the minimum requirement that should be supplied to the generating companies would be clearly stated, thus eliminating the present situation, where the generating companies are only operating at about 20 per cent of their installed capacity,” he said.

Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, who supported the suggestion that payment for domestic gas supply should be in naira, expressed concerns about the vandalization of the pipeline in the Niger Delta.

“However, this should be legislated on. We can both meet Mr. President on this, once we agree on modalities as he is the only one that can give the directives,” he added.

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