A Review of the Nigerian Energy Industry

Nigeria loses 7,000mw of electricity to inadequate gas supply

Sam-Amadi, NERC

24 June 2014, Abuja – The Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi, has disclosed that some power plants in the country are ready to generate an additional 7,000megawatts of power into the national grid but were hindered by the shortage of gas to fire the turbines.

Speaking yesterday when he visited the Corporate Head Office of THISDAY in Lagos, Amadi stated that the first problem facing the new investors that bought the assets of the defunct Power Holding Company of Nigeria (PHCN) was lack of gas to generate power to boost revenue.

Amadi further disclosed that when NERC released the new tariff that took effect from July 1, 2012, the projection was that the country would be generating 9,062mw by today.

“That has implication for commerciality because if power is selling for N10 per megawatt hour, if you multiply it by 9,062mw, you will see the total revenue the industry will today predicate their expenditure on maintenance and infrastructure. But as at March 30, 2014, when we began to review our mark up date for 2014, power supply was about 3,600 or 3,700mw. What I mean is that for the distribution companies, the revenue they expect to get is less than the projection

If there is a huge revenue shortfall because of inadequate generation, it means that down the line, the value chain has broken. They will not have money to replace transformers and they will not have enough money to implement their metering plans,” he said.

He revealed that as at the time of the takeover of the assets by the investors, electricity supply was very low because of the sabotage on gas pipelines.

According to him, electricity supply dropped to as low as 2,700mw at a point, against the projected 9,062mw, adding that at that level, every strategy of regulation became theoretical.

Amadi noted that Nigerians are right to question the excuse about gas because as a gas country, Nigeria was not supposed to give excuse that it cannot generate electricity due to shortage of gas.

He also stated that before NERC built the Multi-Year Tariff Order (MYTO) model, the agency collaborated with the Ministry of Petroleum Resources and other relevant stakeholders to build a good model based on the availability of certain projected quantity of gas.

“We built a MYTO model even in not very good scenario because if we have used good scenario, we would have projected 16,000mw. This would have been the best case scenario and it would have been a realistic benchmarking if gas is available. Today, we have about 7,000mw ready to come into the market but no gas to fire the turbines. So, if you look at that, you could say that you can generate 6,000mw today, if we put the gas in the power plants,” he said.

Amadi blamed the gas situation to vandalism, adding that in the early February and March 2014, the country lost 800mw to vandalism of pipelines.

He also noted that before this present period, the power reform was moving fast but gas was lagging behind.

“Today, you see a mismatch. You have a much-more developed power sector and a very under-developed gas sector, both in terms of policy and management framework. Initially, gas people were not thinking about power; all along, Liquefied Natural Gas (LNG) is the business of gas. So, they did not bother about domestic supply,” he added.

The NERC chairman said it was not until 2008/2009 that the federal government tried to develop gas obligation framework that commits the international oil companies (IOCs) to supply gas to the domestic market.

He pointed out that the Ministry of Petroleum Resources under the present administration was working aggressively to address the problem of gas.

According to him, the ministry had started delivering on its commitment to gas supply, adding that with its efforts, the country will be generating 6,000mw

Apart from the problem of shortage of gas supply facing the new investors, Amadi stated that many of the new owners bought the assets with debts instead of equity.

He said many of the investors used 100 per cent debts to buy the assets, while others used very low equity and much of debts.

“It has many implications. The Nigerian financial market is short-term- they are looking for their money after two months. By the time they paid for the assets around July 2013, it took a long time for them to take over because of labour issues. By the time they took over, it was already time to start servicing the debts. So, the fire was coming to them on two sides – shortage of energy to sell and urgency for them to start paying debt,” he explained.


– This Day
In this article

Join the Conversation