A Review of the Nigerian Energy Industry

Gas shortage, absence of PIB derail power sector targets

Professor Chinedu Nebo09 December 2013, Abuja – Gas supply to power plants has continued to pose a challenge to projected power generation targets, the Nigeria Electricity Regulatory Commission (NERC) has said.

To this end, the Commission has called for the speedy passage of the Petroleum Industry Bill (PIB) currently before the National Assembly, to tackle the challenge.

Speaking exclusively to LEADERSHIP in Abuja, NERC Chairman, Dr. Sam Amadi, said shortfall in gas supply to power plants was largely responsible for the current drop in power generation.

He said “as at Tuesday, December 3, 2012, 2,859MW was unutilised capacity due to gas shortage. NERC therefore urges the National Assembly to quickly pass the Petroleum Industry Bill as it will further enhance the commerciality of gas-to-power.”

The shortfall in gas supply to power results in low generation capacity and consequently reduces power allocation to the distribution companies (DISCOs) which invariably affects their revenue profile and return on investment.

Projections on return on investment, Amadi explained, was based on revenue collection from power sold, adding that a shortfall in power allocation to them will result in the DISCOs’ inability to realise the projected revenue.

For example, Amadi said: “You guarantee Kano some returns based on allocation of power, and if for any reason you cannot send that power to them, there is no way they can meet that expected return. And if they have borrowed money to acquire the asset with the commitment to repay within sometime then there will be some issue as to whether they can be financially viable except you improve power allocation to them and improve collection.”

While emphasising that gas to power is the country’s main hope to ramp up capacity, he stated that government must however, unlock the potential in gas by either conducting a fundamental revision of the structure of the gas industry or harnessing the gas and electricity regulatory framework as was done in the UK in 2001.

“It may require the petroleum industry bill; it might require tough decisions on physical viability of the gas market. It might require ensuring that the tariff respond more to gas market in which case the gas price has to be removed from the domestic obligation and then align the downstream and upstream to ensure more capacity to produce the gas and facilities to take it to the power plants,” he said.

He noted that gas agreements are better securitised in a way that gas suppliers are not on best endeavour but on risk commitment to ensure that gas is delivered to power plant.

Lamenting over poor load allocation recently, managing director of Kano Disco, Dr. Jamil Gwamna, said, “Load allocation to Kano is so bad that we are getting as low as 40MW to cover Kano, Jigawa and Katsina States, not only that about 20MW will go to Niger Republic… So I think these are serious issues which we have found on the ground and they should be addressed urgently.”

– Leadership

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