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Gencos face imminent shutdown over gas supply shortages

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Record earnings trigger investors' scramble for power sector

By AYOOLA OLAOLUWA

Electricity generating companies (Gencos) operating in the country are currently battling to remain in operation as the shortage of natural gas to power their power plants bites harder, Business Hallmark can report.

Nigeria’s average electricity transmission has stagnated at around 4,000 megawatts despite the nation’s 28 electricity generation companies having a combined 22,000mw installed capacity, with shortage of gas being the major culprit.

According to BH checks, Nigeria has 28 Gencos scattered across the 36 states of the federation. They include: Egbin, Transcorp, Azura, Shiroro, Olorunsogo, Sapele, Geregu, Kainji, Jebba, Ihovbor, Delta, Omotosho, Alaoji, Odukpani, Okpai and Omoku power generating plants.

However, only three out of the 28 electricity generation companies, namely Kainji, Jebba and Shiroro are hydro, while others are gas-fired plants that need constant supply of gas to produce.

According to a source in one of the electricity generating companies, who spoke to our correspondent on the condition of anonymity, the biggest problem bedeviling the nation’s power sector is the lack of gas supply to thermal plants.

“Despite having a combined installed capacity of over 20,000 megawatts, we (Gencos) have not been able to generate more than 5,000 MW due to the reluctance of gas companies to supply us gas without upfront payment and without clearing the outstanding $1billion (N820billion legacy debt”.

The source, while disclosing that around 1,800 MW of Independent Power Plant (IPP) capacity are currently idle due to shortage of gas, added that out of the N1.68trillion outstanding debts electricity consumers are owing power firms, about N820 billion is due to gas suppliers.

The Executive Secretary, Association of Power Generation Companies (APGC), Dr. Joy Ogaji, also corroborated the source’s claims, explaining that the amount (debt), which came as a result of unused capacity, dated back to 2015.

Ogaji alleged that the Nigerian Bulk Electricity Trading Plc (NBET) had failed in its obligations to the Gencos as contained in the Power Purchase Agreements (PPA).

‘Illiquidity caused by the huge sums owed Gencos by NBET, has more than ever before continued to frustrate our members and kept them incapable of meeting their obligations, which are extremely necessary to keep their power plants running and make capacities available.

“Most of the electricity generated in Nigeria, about 80 percent, come from gas-fired turbines. Natural gas is the feedstock or fuel of these plants.

“Gencos have consistently been dealing with unending gas-related challenges, which inhibit optimal generation. Issues of gas volume, gas quality, gas pressure and gas transportation have consistently curtailed capacity utilization by Gencos, thereby affecting generation.

“These issues need to be addressed and urgently too, as the Gencos have always requested. Unfortunately, the unenforceable state of the contracts in the NESI (Nigerian Electricity Supply Industry) and the broken cycle of payment assurance have made the enforcement of what would ordinarily be basic obligations of parties to the industry agreements, impossible”, Ogaji lamented.

BH checks showed that NBET is still owing Gencos N214.93 billion for power supplied in 2015; N273.32 billion in 2016; N236.47 in 2017, N264.08 billion in 2018, and N256.97 billion, N266.01 billion and N120.25 billion in 2019, 2020 and 2021 respectively for energy generated and other contractual obligations.

Some Gencos officials also disclosed that gas producers, apart from demanding the introduction of a free market pricing regime for the gas sector, have been on their necks to pay up the legacy debts owed them for gas supplied to thermal power generating companies, amounting to about $1 billion.

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“Defraying the debt in addition to introducing a free market pricing regime for the gas sector will guarantee the continuous operation of thermal power generating companies in the country”, they argued.

President of the Nigerian Gas Association (NGA) and Managing Director of Shell Gas Limited, Mr. Ed Ubong, had confirmed at a recent forum in Lagos attended by our correspondent that his members are being owed about $1billion debt for gas supplied.

“It is very clear that upstream players are not happy with the legacy debt that they are being owed for gas supplied for power, close to a billion dollars.

“My appeal to the federal government is: let’s find a way and pay this money so that there will be peace”, Ubong had stated.

Checks by BH revealed that Nigeria holds the largest natural gas reserves in Africa — and the ninth-largest globally — with an estimate of 210.8 trillion cubic feet (Tcf).

However, only a little, 1.2 billion standard cubic feet (scuf), is tapped daily, as gas producers are reluctant to invest heavily in gas infrastructure owing to low gas prices and lack of guarantee of payment by the Gencos.

Further check revealed that out of the nation’s daily gas production of 1.2 billion standard cubic feet (scuf), 41 per cent is exported; 48 per cent is reserved for the local consumption and the remaining 11 per cent wasted through flaring.

Owing to the challenge posed by the non-availability of gas, some foreign technical partners of the Gencos, BH learnt, have considered terminating their contracts with their local partners and exiting the country.

For instance, U.S. based energy giant, General Electric (GE), has threatened to pull out of the contract it signed with TransAfam Power over the non-availability of gas to test its newly installed plant.

TransAfam Power Limited is a subsidiary of Transcorp Group, the core investor in the 1,000MW Afam Power Plc. and Afam three-fast Power, jointly referred to as the Afam Generation Company (Genco).

According to the Chairman of Transcorp Group, Tony Elumelu, who disclosed this at the just concluded Nigerian Bar Association (NBA) annual General Conference in Abuja, most power generating plants have been idle due to lack of gas.

“Is it not ironic that a country with abundant gas resources cannot optimally operate its power plants due to lack of gas?

“The TransAfam Power Plant that belongs to Transcorp Group has an installed capacity of 1,000 megawatts. The Federal Government of Nigeria made a significant investment to acquire 240 megawatts of fast power turbines from General Electric (GE).

“For context, 240 megawatts of electricity can power about one million homes in Nigeria.

“Yet, GE has threatened to pull out of the project, because our nation – with some of the largest gas reserves globally, could not provide 65mm scf of gas needed for the comprehensive testing of the installed fast power plant”, Elumelu lamented.

The billionaire businessman advised the federal government to tap into the massive available private capital needed to revive the nation’s idle gas fields.

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Reacting to the development, some energy experts, who spoke to our correspondent blamed it on the decision of government to fix the price of gas in order to keep electricity tariff low.

An energy consultant, Joseph Igbrude, blamed the federal government for the current travails of Gencos, warning that the whole nation could soon be thrown into darkness if the anomaly is not addressed.

“The reduction of gas prices from $2.50/MMBtu to $1.50/MMBtu by the Federal Government in July 2021 to keep electricity tariff low is a bad decision that has not only affected the gencos, but the whole transmission and distribution chains.

“Government should scrap the gas price regulation regime like it scrapped the fuel subsidy regime. It has taken a huge toll on the margins of producers, who have now found ways to beat it.

“Gas investment is not cheap. Operators will want to sell gas at a price that will enable them recover their cost. So, their (producers) reaction is causing shortages in the local market.

“I can tell you this, and the government is aware aware of it, IOCs producing gas are turning their focus to the international market and abandoning the domestic market leading to constant shortage.

“Instead of selling for $1.50, gas producers focus on meeting international demands, where they get about $3 for the same value, and flaring the remaining gas coming from the ground.

“The IOCs also find it more cost-effective to flare the remaining gas rather than converting it at a high cost, but with little opportunity to recoup costs and make healthy margins that will encourage continuous investment.

“The unintended effect of that is the poor power supply that we are witnessing in some parts of the country.

“I think government is shooting itself in the foot by distorting market fundamentals. What the industry needs to achieve its gas utilisation objectives is a willing buyer-willing seller market”, Igbrude declared.

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