A Review of the Nigerian Energy Industry

Gas suppliers’ demands stall transition electricity market

06 January 2014, Abuja – There are strong indications that the kick-off of Transitional Electricity Market (TEM), which was scheduled for January 1, 2015, may be delayed further by the demands of gas producers in the sector.

THISDAY learnt that gas producers, who will supply gas to thermal generating plants, have requested that Letters of Credit (LCs) with 12-month duration be posted to their banks before the Gas Supply Agreements (GSAs) with the generating companies would be activated.

Power.electricityLC is a document from a bank that guarantees that a seller will receive payment in full as long as certain delivery conditions for goods and services have been met.
It also guarantees that in the event that the buyer is unable to make payment on the purchase, the bank will cover the outstanding amount.

However, the Managing Director of the Nigeria Bulk Electricity Trading Company (NBET), Mr. Rumundaka Wonodi told THISDAY that his agency had set up adequate operational mechanisms for the take-off of TEM.

NBET will play a central role in the much-awaited contract-based market.
THISDAY however gathered that demands by gas suppliers that a 12-month long LC be posted to them ahead of time by electricity generation companies have set back the expected commencement of TEM, which the Minister of Power, Prof. Chinedu Nebo recently said would tentatively start by January 1, 2015.

Industry sources, who spoke on the condition that their names would not be mentioned in the paper, explained that by implication, the GSAs  between both parties cannot be activated, just the same way the Power Purchase Agreements (PPAs) and vesting contracts, which the generation and distribution companies signed with NBET will not come into force until reasonable guarantee of power production is established.

Speaking on the way forward with the seeming impasse, the sources noted that a review of the 12-months long LCs demand by gas suppliers has been done by stakeholders in the market with an appeal to the gas suppliers to lower their duration and accept LCs between three and four months duration from the generators.

The appeal, it was learnt, is being considered by the gas suppliers, who are reportedly eager to do business with the electricity sector, especially with consideration to the new gas-to-power price which was recently approved by the Nigerian Electricity Regulatory Commission (NERC).

Upon their acceptance, the generation companies are expected to post LCs to them and as well activate their GSAs.

Nebo had in announcing the January 1 takeoff date for TEM, stated that the main focus of TEM will be the consummation of all contractual obligations as stipulated in the rules. He added that it would be an attempt to make the market more matured and robust and therefore called on all actors to do their beats.

While pledging a level playing ground for players in the sector, Nebo insisted that government would not accept any excuse for the inability of all actors to provide Nigerians with uninterrupted power supply and disclosed that inasmuch as the Central Bank of Nigeria (CBN) is ready, all market participants should perfect their papers in order to access cheap fund as recently underwritten for the market by the CBN.

The minister also explained that government is determined to radically address the lingering metering-gap existing in the power sector, this, he said will help block leakages thereby making more resources available for investment.

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