Business
Power crisis may worsen over Power Purchasing Agreement
By Adebayo Obajemu
There’s a looming sword of Damocles hanging over the power sector in the country over the contentious nature of a host of power liberalization agreements, including the Power Purchasing Agreement, PPA, and most especially the resolve of the Nigeria Electricity Regulatory Commission, NERC, to set in motion the activation of PPA among other challenges.
Other contentious issue that is threatening the tenuous uneasy relationship between the federal government and the generation companies of Nigeria, GenCos, is the insistence by the later that it cannot attain the 5,000MW order by NERC by the end of July, saying such order from the regulatory agency is not only mischievous but ‘an APC promise’, which is not realistic.
Concerns became strident last week, when it emerged that the Nigerian Electricity Regulatory Commission (NERC) was serious on its bid to enforce Power Purchase Agreement (PPA) between Nigerian Bulk Electricity Trading Company Plc (NBET) and players in the power sector.
A Power Purchase Agreement (“PPA”) is normally the primary contract between the public and private sector parties, which underpin a power sector. It is in a sense, between a public sector purchaser “off-taker” (often a state-owned electricity utility, in jurisdictions where the power sector is largely state operated) and a privately-owned power producer.
According to a letter allegedly sent to one of the Generation Companies (GenCos) by NERC’s Secretary, Ada Ozoemena, the agreement would be signed before the end of June. The simmering crisis between NERC and GENCOs has become more pronounced at the beginning of this year.
Early in March, 2022, similar skirmish between GENCOs and Nigerian Bulk Electricity Trading Company Plc created tension in the power sector.
The PPA agreement has spelt out the nature of a long-term contract with conditions for the purchase of electricity.
According to media reports, the regulatory agency in the invitation letter to GENCOs wrote:
“Please find attached Activation Agreement to be executed between thermal GenCos and NBET for the activation of contracts in Nigeria Electricity Supply Industry (NESI) and note that an Activation Agreement Execution Event at which the MDs’ personal presence is required shall hold as follows: Date: 28 June 2022 at 9:00a.m. prompt.”
The template and reason for this turn of events is the intermittent and persistent power supply failure, as supply through the national grid is not showing any sign of improving.
Sources say the Federal Government has concluded plan to abandon the ‘best endeavour’ approach for a contract-based which many have argued is the only way the Nigerian Electricity Supply Market can yield the 5,000MW target; but GENCOs have always insisted that the only way that target can be met is for the federal government to guarantee gas supply to the power plants and also pay up debts owed to them to facilitate the repairs of units in the power plants.
Adeditan Ojo, an expert in power sector told Business Hallmark that before federal government can realize this target “it must pay over N1.64 trillion debts it is owing GENCOs under the previous agreement.”
The generating companies themselves have said that unless the federal government fulfill its own obligations, activating PPA will not resolve the challenge until there’s compliance to interrelated agreements as well as gas-related issues.
Recall that after privatisation of the power sector in 2013, the six legacy GenCos were given template PPA with the mind that they would renegotiate and sign PPA as soon as NBET gets on stream but the agency was not in place until 2015.
There were issues with letters of credit as the DisCos had gone to court, delaying the PPA through an injunction before the contract was finally signed in 2016. At that, the power firms said guarantee for 100 per cent was never meant even as the trustee, United Capital, could not release fund to them.
The Association of Power Generation Companies (APGC) said GenCos’ investors had spent heavily in generation assets, going as far as obtaining loans to fulfill their obligations on the assurance of 100 per cent payment of monthly market invoice upon fulfillment of their obligations.
It is believed that misunderstanding in the previous PPA had cost the Federal Government over N701 billion in payment to gas suppliers, the companies said that rest of the debt has been on their account, adding that gas suppliers have already appointed debt collectors who are hounding them daily.
Recall that in March, the power generation companies went public with their frustration when they alleged that the Nigerian market was under threat as a result of claims by the Nigerian Bulk Electricity Trading Company Plc that only five Gencos had active Power Purchase Agreements in Nigeria.
Responding under the umbrella of the Association of Power Generation Companies, the Gencos disputed the claims by NBET, arguing that such statement emanating from the bulk trader had the potential to drive away investors from investing in the sector.
Then the Executive Secretary, APGC, Dr. Joy Ogaji, told journalists that the absence of PPAs as alleged by NBET implied that Gencos were exposed to the vagaries in the downstream electricity market
“The fact that NBET claims that they have only five active PPAs entails that most of the power plants do not have Power Purchase Agreements.
“This situation is a scary scenario for any investor, as no guarantee of any sort is in place to assure any form of return on investments.”
It must be stressed that part of the challenge is that Federal Government is still owing GENCOs over N1.6tn since 2013.
Weighing in on the negative implication of the debt situation, Ogaji stated that, “We are currently owed N1.644tn. One of the reasons that the power plants are down is due to inefficient management of the grid.
Currently, about 80 per cent of generated power in the country comes from gas-fired turbines. The GenCos consistently complain about gas-related challenges; gas volume, quality, pressure and transportation that have perennially curtailed capacity utilisation.
Efforts made so far by the stakeholders and the government have failed to solve the challenges to gas flow to the power plants. More pragmatic initiatives should be adopted.
Like GenCos, the DisCos too are overburdened with debt. Combined, the different industry segments owe lenders over N840 billion.
In spite of the fact that GENCOs have claimed that the target is not realistic, the Nigeria Electric Regulatory Commission (NERC) has said that the electricity Generation Companies (GenCos), Transmission Company Nigeria (TCN) and Distribution Companies(DisCos) have agreed to a binding contract guaranteeing the generation, transmission and distribution to scale-up power supply to an average of about 5000 megawatts of electricity daily to customers effective from July 1, 2022.
Sanusi Garba, Chairman, Nigerian Electricity Regulatory Commission (NERC), said this during a media briefing in Lagos last Wednesday.
According to him, the contract is binding on all the players across the sector’s value chain and stipulates penalties for any party that defaults on the arrangement under the new regime.
He said that Nigerians have been guaranteed the generation, transmission and distribution of an average of 5,000MW of electricity daily from July 1, 2022. Engr. Sanusi said, “We have had discussions with the gas suppliers within our regulatory space. We have them on board to ensure that once we made the commercial requirements, gas was going to flow.
“Now, for transmission, we have heard of figures well in excess of 5,000MW and clearly TCN will be able to deliver that. I recall clearly that in March last year we had 5,400MW. So, it means it is quite possible based on signed commitments.
“All the stakeholders across the value chain had obligations and there would be consequences if they failed to deliver. So, in a situation where Gencos are able to deliver 5,000MW but TCN is unable to do so, they’ll pay the penalty to the generation company and so on.
“And whenever the power is available and DisCos do not take the power; then they will pay liquidated damages that will compensate other market participants.
“We might not have 24/7 power supply from July 1 but Nigerians will see the trajectory because the target is to have an average of 5,000MW daily for transmission and distribution.”
“The challenges of today are very clear. In the past, it used to have weak infrastructure and so on and so forth. Now we have certain external factors contributing to these events.
“Obviously, it’s not common around the world to see people coming down, pulling down transmission towers for no reason; or blowing up crude oil lines.
“In a number of instances, most of the gas we have today is associated gas and because of that when crude lines are disrupted it also affects the supply of gas to the thermal stations,” he added.
Garba also noted that plans are ongoing to commence the first phase of the National Mass Metering Programme (NMMP) at the end of August 2022, with the installations of four million meters under the scheme
