A Review of the Nigerian Energy Industry

Transitional electricity market will create bankable market – energy experts

20 October 2014, Lagos – Some experts in Nigeria’s power sector have posited that the plan by the Nigerian Electricity Regulatory Commission (NERC) to ask the Minister of Power, Prof. Chinedu Nebo to declare the Transitional Electricity Market (TEM) would create a bankable electricity market for the benefits of all the stakeholders.

Dr. SamAmadi, NERCChairman of NERC, Dr. Sam Amadi recently stated that Nigeria’s liberalised electricity market was ready to go into the next stage of TEM phase. Specifically, he said, the agency would ask Nebo to declare TEM in “a matter of days”. Speaking separately on the issue, two experts, one of whom spoke on condition of anonymity, countered the argument that the market was not ready for TEM because of the post-privatisation challenges, which were yet to be resolved. Chief Executive Officer of the 1,320 megawatts capacity Egbin Power Plant, the biggest power generating plant in the country, Mr. Mike Uzoigwe told THISDAY that TEM should be declared to create a bankable market for all the stakeholders. Uzoigwe noted that “if the power sector is allowed to remain where it is at the moment, it will not take us to anywhere.” “If I am paid for the power I generate, I will have more money to buy more gas and generate more power. In other words, if I generate power and they pay me for it, I will generate more power. If the gas producers and investors are paid for gas, they will be encouraged to produce more gas,” he said.

On the claim that the IOCs and the local investors will not supply enough gas to the NGC for the generation companies and this will lead to breach of contractual obligations under TEM, Uzoigwe stated that the investors would start to invest in domestic gas if they have concrete assurance that they would be paid. “When the investors see that there is a good domestic market, where they will be paid promptly, they will invest in gas. The important thing is for people to build more power plants; let people pay for the power they consume. We need to try TEM because if we remain where we are, it will not take us anywhere,” he said. A former Chief Executive Officer of one of the Discos under the defunct PHCN also supported the declaration of TEM, acknowledging that the power privatisation was rushed but adding that all the stakeholders have seen the mistakes and are now restrategising. “The investors did not study the market well because of the strong opposition by the labour. NERC and everybody got the indices wrong. That is why there is no improvement in power supply. If you ask any former PHCN top official, he will explain the real problems to you but some of them will not like to be quoted. But everybody is now rethinking. So, they should declare TEM,” he explained. Nigeria’s power sector is currently being operated under interim rule, where the market participants operate on the basis of best endeavour, without any regard for terms of the existing contracts.

Under the current operating conditions, market participants are not sanctioned for failing to meet their contractual obligations. But when TEM is declared, all actionable agreements, which have been signed by the various market participants but are awaiting implementation, will be implemented. The declaration of TEM will make it mandatory for the Nigerian Gas Company (NGC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC), to be sanctioned in the event of failure to deliver on its gas supply commitments to the power producers, in line with the Gas Supply Agreement (GSA) signed in 2013. With TEM also, any power generating station that fails to deliver on its electricity supply commitment to the national grid in accordance with the Power Purchase Agreements (PPAs) signed with the Nigerian Bulk Electricity Trading (NBET) Plc, otherwise called the Bulk Trader, will also be sanctioned.

The Distribution Companies are also expected to activate extant vesting contracts with NBET Plc, whereby NBET must meet its obligations to the Discos in terms of supply of bulk power for distribution. Actionable agreements, which have since been signed but awaiting implementation, pending the declaration of TEM, include Transmission Use of Service Agreements (TUOS); Grid Connection Agreements; Ancillary Services Agreement; Power Purchase Agreements (PPAs); Gas Supply Aggregation Agreements (GSAAs) and Gas Transportation Agreement (GTAs). The GSA obligates the gas supplier to provide the agreed minimum amount and quality of gas to the power producers. The agreement also obligates the power producers to pay for gas supplied and provides for penalties for non-delivery of the required gas and non-payment for the gas delivered.
*Ejiofor Alike – Thisday

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