A Review of the Nigerian Energy Industry

Generating companies to make direct payments for gas under interim market rules

Dr. Sam Amadi
Dr Sam Amadi, NERC Chairman

14 January 2014, Abuja – The newly privatised thermal power generating companies (gencos) are to assume direct responsibilities for making payments to their respective gas providers.

This is contained in the extant interim market rules drawn up by the Nigerian Electricity Regulatory Commission (NERC) to guide operations of Nigeria’s Electricity Supply Industry (NESI) pending the final declaration of a Transitional Electricity Market (TEM) in February.

NERC had in line with Section 96 of the Electric Power Sector Reform Act 2005 (EPRS), which empowers it to make regulations in the sector, drawn up the rules for the interim period between completion of power assets privatisation and start of the TEM.

A copy of the provisional document obtained by THISDAY showed that the Market Operations (MO) department of the Transmission Company of Nigeria (TCN) will no longer perform such responsibilities in the interim period and perhaps going forward into TEM.

“The existing practice of deducting gas costs from Gencos’ receivables by the MO for onward payment to gas providers shall cease from the start of the interim period and the Gencos shall thereafter be responsible for making payments to their respective gas providers,” parts of the rules stated.

The document also provided a lucid process for remitting electricity subsidy provided by the federal government in the Multi Year Tariff Order (MYTO-2) framework to eventual beneficiaries in the electricity supply value chain.

Industry experts have however stated that the proviso could bring about stable supply of gas to thermal power plants in view of a possible existence of some considerable level of payment guarantee from the plant owners. This, they argued would depend on timely disbursement of accruable industry funds by the MO and availability of enough gas feed stock.

Also on the process of subsidy remittance to eligible industry participants, parts 25 and 26 of the interim rules provided that payment of subsidies must be through a lucid process involving a timely submission of subsidy request by the MO to the ministry of finance for approval and disbursement by the Central Bank of Nigeria (CBN).

It also noted that payment of subsidy to distribution companies shall be based on the balance from reduction in their specific obligations to generation companies and service providers.

According to the rules: “The process for the disbursement of the federal government subsidy for the electricity tariff under the MYTO-2 shall be as follows: the MO submits a request every three months in advance to the ministry of finance for the release of subsidy budgeted for the next three months to the MO’s account with the CBN; ministry of finance authorises CBN to release budgeted subsidy funds to MO’s account with CBN; CBN releases subsidy budget funds to MO’s account; MO releases monthly settlement statements including allocated subsidy to Discos and MO disburses subsidy calculated based on each Disco’s collection to settle bills due to Gencos and service providers on behalf of each Disco.

Subsidy allocations to Discos as provided in MYTO-2 shall be applied by the MO to pay specific Disco obligations to Gencos and service providers. The balance if any shall be paid to the relevant Disco.”

– Chineme Okafor, This Day

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