04 December 2013, Sweetcrude, ABUJA – The Federal Government on Tuesday placed N50billion in escrow accounts of three selected Nigerian banks to support power generation companies, GENCOS.
The money which was part of the amount realized from the recent sale of the successor companies of Power Holding Company of Nigeria, PHCN, would insure generating companies from any revenue loss in their effort at boosting electricity generation.
This is following from its earlier promise to provide such incentives to the new owners of the generation companies which had accordingly made payments for their assets on such basis; through the Bureau of Public Enterprises, BPE, and Nigerian Bulk Electricity Trading Company, NBET, Plc, the government signed an escrow agreement on power with three Nigerian banks in Abuja.
The participating banks are First City Monument Bank (FCMB) Plc which is the lead escrow agent, United Bank for Africa (UBA) and First Bank Plc.
The accounts would be managed by the Electricity bulk Trader, NBET.
Speaking to newsmen shortly after the signing of the agreement with the banks, Director General of BPE, Benjamin Dikki explained that the fund is not an endowment to the GENCOs but was put place as an incentive to the power plants owners to invest in expanding their capacity.
According to him, “This N50 billion is not a dash, there are certain conditions that must be met before funds can be drawn from this escrow account. The market and systems operator have to confirm the quantum of power that was put on the national grid.
“The market operator has to confirm that because of system defects and inefficiencies in the transmission network, certain amount of power was lost, so there has to be a due process before any Genco can draw from this amount, it is not a gift because certain conditions have to be met.
“It is actually the generation companies that are left on the high end and we need to guarantee that whatever power they generate will be paid for if not, they will lose their capital and not able to invest on expansion of their capacities”.
He noted that the country has about “29,000 megawatts (MW) of basic power needed to stabilise our power needs of 40,000MW and the average cost of installing a megawatt is about $1.3 million and that will mean an investment of $7.5 billion for 5000MW, and so we need to make sure that we create the atmosphere that will enable these generation companies to make investments in power generations without looking back or worrying whether they will be able to recoup monies they have invested and that is why this escrow account was created.”
Dikki said the whole “essence is to induce efficiency in the market, if somebody is penalised for losing power in the system, that person will sit up and ensure that it does not lose power and money. Whatever that is already drawn from the escrow account cannot be clawed back, it is the insurance that the federal
government is giving to ensure that we have stable power.
“Something must come at a cost, at this initial stage of the development of a private sector driven power market, there has to be some guarantees that will enable investors to see a clear horizon of investments; if they see any chances of them losing money in the process, they won’t invest and so in this transition
market, government must provide some sort of guarantees that will give the Genco owners some confidence to go and invest $1.5 million per megawatts to give us the level of stability that we want,” he added.
Commenting on the roles of the banks, he stated that the banks “are the custodians of the money which is deposited in them and we want to establish a process through which this money will be drawn and not just drawn frivolously, that is why the BPE, Bulk Trader and the banks signed the agreement to say that you have to follow a process to draw this money otherwise there will be penalties; the lead bank is FCMB which is the lead escrow agent, others are UBA and First Bank, the money is coming from the proceeds of the sale of PHCN successor companies”.
The BPE boss however clarified that the distribution companies were not covered by the fund, explained that the Discos had committed to reducing the Aggregate Technical Commercial and Collection (ATC&C) losses of the distribution companies.
“If you recall, they (distribution companies) were not given to the highest bidder but to those that committed to reducing ATC&C losses by a certain percentage and so they have committed and have given a technical proposal with a business plan cataloguing the level of investments that they will make every
year in this regard,” he explained.