A Review of the Nigerian Energy Industry

Power essential to unlock economic potentials – CBN Governor

Godwin Emefiele, CBN Governor*Announces plan to clear N25bn gas to power debts

Oscarline Onwuemenyi

04 August 2014, Sweetcrude, Abuja –
The new Governor of the Central Bank of Nigeria, CBN, Mr. has promised the bank would pay off about N25 billion owed by power generating companies to gas producers in the country in order to remove the air of uncertainty in the sector and ensure gas is supplied to keep the economy thriving.

He said the Central Bank has always looked for ways to support the power sector, which he described as “very essential to unlocking the economic potentials of the country,” and considered that payment of the outstanding debts will serve as a guarantee to the suppliers and give the ailing sector a needed boost.

Emefiele, who was speaking in a press briefing organized in collaboration with the Ministry of Petroleum Resources, Ministry of Power, the Nigerian National Petroleum Corporation(NNPC), and the Nigerian Electricity Regulatory Commission (NERC) in Abuja, described the action of the CBN as “sowing some seed” and “providing a form of intervention at concessionary prices to support the endeavor to provide power to Nigerians and help in growing the economy.”

He noted that to give confidence to stakeholders in the gas sector regarding the willingness of the power sector to settle its outstanding debts for gas, the Central Bank will support initiatives to clear up the most recent gas-related debts of the power sector.

“Specifically, the CBN is looking at banking sector-led measures to pay off N25bn of debts owed to gas suppliers. This will be subject to reconciliation efforts and adequate provision for this support in a revised MYTO that ensures repayment within five years.

“The Central bank will also play a key role in financial arrangements that guarantee payment for gas supply by the power sector,” he revealed.

Emefelie noted that the Bankers’ Committee (BC) has called for more actions towards the sector at its recent meetings, and that led to the CBN Governor being asked to continue engagement with the Ministries of Petroleum Resources as well as Power.

“Our interactions with stakeholders revealed that there are some outstanding legacy debts of about N25 billion, and we thought that as a financial catalyst in this process and the entire we should give support by ensuring that the existing gas suppliers are given confidence by paying off these outstanding debts” he stated.

According to him, the CBN as well as the deposit money banks will “seek ways to set up an SPV through which this debt of N25 billion will be paid to gas suppliers, and thereby give them the confidence to continue to produce gas which is badly needed to power the generating plants.

“As I made clear in my inaugural speech, I felt that power is very essential to unlock the potentials of the Nigerian economy, and to do so we felt that it is important for us to begin to learn about the issues that are militating against the adequate supply of power for the economy to thrive.

“This is why we are engaging in this collaboration with the two ministries of government directly responsible, as well as with NERC and the NNPC, to ascertain areas we can come in to ease the bottlenecks and give the sector a shot in the arm,” he added.

He further noted: “We have found out that investors that would have liked to come into the sector have been queasy about the gas pricing modalities; many of them believe that the price of gas is not competitive enough as per what obtains elsewhere in the world. This is the reason we have decided to intervene in such a manner.

“We are hoping that with the adjustment in the gas pricing, it will make the sector more competitive for existing and potential producers, and of course, the banks will be more than ready to come in and act as financial catalysts, which is part of their obligation to growing the national economy.

The Minister of Petroleum Resourses, Mrs. Diezani Alison-Madueke recently stated that in addition to the review in the price of gas and debt payment by the CBN, the Federal Government is focusing in a targeted manner on a number of gas supply projects that will help cushion the effect of supply shortage.

“These projects which are at various stages of maturation, but which will be concluded before the end of the year, should unlock additional 370mmcf/d assuring us of a total of 5000MW (inclusive of hydro) within the next five months,” she said.

In order to minimize disruptions to supply, she said the NNPC has also concluded a harmonization plan of the maintenance schedule of all gas plants from various suppliers, adding that all planned maintenance will be carried out between August and September this year.

She observed that currently, about 750mmscf of gas is supplied to the power sector, resulting in an aggregate generating capacity of 4000MW. “However, various outages reduce the actual availability of power,” she added.

The Minister noted that the “problem of inadequate gas supply is one that has been ongoing for almost 20 years, and was inherited by this administration. Since then, various interventions have been put in place to bridge the supply challenge.”

She added that, “Although, gas supply has grown significantly in the last two years to about 1500mmcf per day, demand growth continues to outpace supply both in the power and non-power sectors. This mis-match has created a short term gas supply crisis.”

She said some of the typical challenges that have impacted the supply of gas including rapid reservoir decline, pipeline vandalism, community disruptions of project schedules and funding are continuously and progressively mitigated through various schemes, such as a more aggressive drilling campaign to bridge decline, alternative funding schemes and a holistic government approach to pipeline security.

According to the Minister, whilst the medium term gas supply projection from the late 2015 is significantly better, the immediate focus is addressing the short term challenge, particularly as it affects the power sector.

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