A Review of the Nigerian Energy Industry

Govt sees improvement in power generation by year end

power-transmitting-station…Will result from inter-agency initiative at fast-tracking gas supply to power plants

OSCARLINE ONWUEMENYI 17 August 2014, Sweetcrude, Abuja – The Federal Government expects an improvement in power generation in the country resulting from its recently-announced integrated and inter-agency-driven measures to revamp its gas-to-power initiative and ensure adequate and sustainable supply of gas to power stations.

The new measures, on which the Ministry of Petroleum Resources, Ministry of Power, the Central Bank of Nigeria, CBN, the National Electricity Regulatory Commission, NERC, and the Nigerian National Petroleum Corporation, NNPC, are collaborating is aimed at addressing outstanding issues around gas pricing, legacy debts to gas suppliers and fast-track additional gas supply, particularly in the short term.

At a press conference in Abuja, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, stated that working together, the two ministries and agencies of government had “developed additional interventions that will address outstanding issues around gas pricing, including fast-tracking additional gas supply development, particularly in the short term”.

“It is expected that barring unforeseen developments these interventions will add at least 370mmcf per day of gas and assure a generation capacity of at least 5,000MW within four to five months,” she added.

The minister further disclosed that NERC has approved a new benchmark price of $2.50/mcf for gas supply, and $0.80/mcf as transportation cost for new capacity, from 2014. She added that the benchmark will rise with US inflation annually.

“In addition to the new price, NERC will require firm commitments from gas suppliers that they will supply the agreed quantities of gas to generation companies as long as payment terms are met.

“NERC is presently concluding the review of the Aggregate Technical Commercial and Collection (ATC&C) losses studies submitted by the distribution companies. This will be followed up by a review of the revenue requirement for the power sector that is to be covered by the revised Multi-Year Tariff Order (MYTO) path.

“While the detailed tariff is being worked out, NERC reaffirms its commitment to ensure cost recovery for all prudent and efficient operators,” the Minister added.

Furthermore, she noted, 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 of Nigeria (CBN) 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,” she revealed.

Alison-Madueke stated that in addition to the review in pricing and debt payment, the Ministry of Petroleum Resources 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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