Gencos Give Six Conditions to Avoid Operational Shutdown

Discos kick against TCN’s management of N72bn

• Urge FG to tackle transmission challenges

By Ejiofor Alike in Lagos and Chineme Okafor in Abuja

Power generation companies (Gencos) in Nigeria have listed six conditions that must be met by the federal government or they shut down their operations.

This is coming as the distribution companies (Discos) have kicked against the federal government’s selection of the Transmission Company of Nigeria (TCN) to manage the N72 billion financial investments it intends to inject into the distribution network nationwide.

The Discos have also identified low power transmission caused by the persistent directive from the National Control Centre (NCC) to generation companies to generate electricity below optimal level as a major hindrance to the country’s drive towards efficient power supply and called on the federal government to urgently tackle the transmission challenges.

One of the six conditions handed over to the federal government by the Gencos is the immediate payment of the outstanding balance due to them under the N213 billion Nigeria Electricity Market Stabilisation Facility (NEMSF) created by the Central Bank of Nigeria (CBN) in 2013.

The second condition is that the Gencos also want the federal government to pay them the outstanding balance for power generated as at January 2015 before the Transition Electricity Market (TEM) took off, as well as outstanding invoices for power supplied to the grid between February 2015 and December, 2016 with accrued interests.

They also seek capacity payments for the period February 2015, to date, payment for deemed capacity for the period 2013 to date, and the setting up of an effective financing plan which would kick off after the completion of the N701 billion assurance facility set up by the government to sustain payments of invoices until 2021, when the government estimated the power market would be self-sustaining.

Speaking yesterday through a statement by the Secretary of the umbrella body of the Gencos – the Association of Power Generation Companies (APGC), Dr. Joy Ogaji, the power producers explained that contrary to the impressions being created in some quarters, they have not been better off with existing financial intervention schemes initiated by the federal government.

“Gencos without equivocation are stressing the need for government and relevant stakeholders to tackle the operational inefficiency and liquidity challenges plaguing the entire value chain and making the sector unattractive for investment by: expediting the process of payment of the outstanding balance due to Gencos under the CBN N213 billion Electricity Market Stabilisation Facility.

“Payment of the outstanding for January 2015 (invoice unpaid with Market Operator before TEM); outstanding/unpaid invoices from February 2015 to December 2016 with accrued interests; payment for available capacity for the period 2015 February to date; payment for deemed capacity for the period 2013 to date; putting in place an effective financing plan to kick in upon the exhaustion of the N701 billion payment assurance facility to sustain payments of invoices till 2021, when federal government projects that the NESI would be self-sustaining,” the statement said.

The Gencos noted that there was a plan by the federal government to provide them with World Bank Partial Risk Guarantees (PRGs) supported by sovereign guarantees from Nigeria at the inception of the power sector privatisation exercise, adding that such financial instrument has become inevitable.

“Without such instruments and the required sovereign backing, it becomes impossible for any bank or financial institution to provide any funding or credit accommodation to any Genco, yet there is an obvious need for substantial additional investments and funding to develop the NESI and put the electricity market on the right growth trajectory,” the Gencos added.

Operators kick against Management of N72bn Investment in Discos

In a related development, the power operators have also kicked against the plan by the federal government to allow the Transmission Company of Nigeria (TCN) to manage the government’s N72 billion investments in the Discos.

The federal government had hinted it would invest about N72 billion in the Discos to be managed by the TCN to upgrade the Discos’ networks and enable them distribute about 2000 megawatts (MW) of electricity it claimed was lying idle.

But the owners of the Discos argued yesterday that they would not back such decision, adding that they still maintain up to 60 per cent shareholding in the networks.

The Discos further added that as part of Nigeria’s company laws, their boards should be allowed to deliberate and decide on the conditions for such investments if they would ever accept it.

The Discos under the aegis of the Association of Nigerian Electricity Distributors (ANED) said they do not have confidence in the TCN.

“It will be difficult for the Discos to acquiesce to TCN/MoPWH (Ministry of Power, Works and Housing) adding a further N72 billion of debt to the N1.3 trillion of debt already on their financial books, given the Discos’ inability to access debt financing required to address massive capital expenditure requirements that far exceed the N72 billion initiative that is required to inject the efficiency that electricity customers demand; the Discos’ regulatory constraints; and the uncertainty of projects built by an entity that is licensed only to transmit energy and not distribute energy.

“It should also not be forgotten that the Discos are already carrying, out of the total sum of N210.61 billion, 72.25 per cent or N152.16 billion of legacy gas and energy debt (incurred by PHCN) associated with the CBN’s Nigerian Electricity Market Stabilisation Facility (NEMSF), a debt unconnected with the Discos, a contravention of the debt-free requirement, that was a fundamental contractual requirement of the sale of the distribution assets,” ANED explained.

They said the basis of the planned N72 billion funding was to evacuate 2000MW of electricity which they claimed were not stranded on account of distribution limitations but mostly by gas, frequency, and line constraints.

Urge FG to Tackle Transmission Challenges

In another development, the Discos have also identified low power transmission caused by the persistent directives from the National Control Centre (NCC) at Osogbo in Osun State, asking the Gencos to generate electricity below optimal level as a major hindrance to the nation’s drive towards efficient power supply.

The Executive Director, Research and Advocacy, ANED, Mr. Sunday Oduntan, said in Lagos at the weekend that while the Discos are not interested in any further controversies in the power sector, operators would continue to demand for enough power supply for Nigerians.

“We want Nigerians to know that the current distribution capacity of all the 11 Discos is 6,288MW, according to the TCN stress test that was conducted in 2015.

“This is not our figure; this is the figure from the TCN side. Now what we are getting from them is far too low than what we are supposed to be getting,” Oduntan said.

The Gencos last week threatened to shut down their plants over repeated directives by the NCC to generate below optimal level.

According to Ogaji, the Gencos were facing lower capacity utilisation by operating their plants far from the baseline settings to as low as about 50 per cent of total available power capacity.

Using the month of April as a case study, Ogaji disclosed that on a daily basis, the Gencos had an average capacity of 7,484MW, while the TCN transmitted only an average of 3,985 MW, about 53 per cent of the available capacity.

For Oduntan, the implication of this trend in power generation is that Discos “are not able to supply enough power to (our) customers and we are now making Nigerians to be aware that shortage of power supply or lack of power is due to TCN constraints and persistent outages from the TCN interface and the Gencos have actually confirmed that.”

Oduntan urged the federal government to urgently address the issue of transmission bottlenecks in the power sector, noting that the development is impacting negatively on the Discos’ business, in particular and Nigerians in general.

“What we are currently having is a suppressed tariff regime that is not cost reflective – a tariff that was calculated on the wrong assumption that by 2018 we would be generating over 7,000 MW. The absence of that level of generation means that we are having more shortfalls in the market. The situation is now far worse when we are getting far lower than expected from TCN,” Oduntan explained.