A Review of the Nigerian Energy Industry

Govt provides guidelines for PPAs, plans cuts in negotiation cycle

Prof. Chinedu Nebo.
Prof. Chinedu Nebo.

*As Discos signal readiness to participate in Transitional Electricity Market

Oscarline Onwuemenyi

23 January 2015, Sweetcrude, Abuja –
The Federal Government has provided guidelines for power firms to adhere to in order to efficiently sign Power Purchase Agreements (PPA) with the Nigerian Bulk Electricity Trading Company, NBET.

The Minister of Power, Prof. Chinedu Nebo, stated that the PPA was the instrument with which the NBET would manage risks in the electricity market, adding that the initiative had encouraged various foreign investors to invest in the Nigerian power sector.

Nebo, who launched the handbook entitled: ‘Understanding Power Purchase Agreements,’ explained that the PPA was a durable agreement to cement the predictability and durability that was needed for any long-term business venture.

Represented by his Special Assistant on Gas, Mr. Frank Edozie, the minister observed that the PPA would ensure the growth that was required for new investments in the sector.

The Nigerian Bulk Electricity Trading Plc (NBET), meanwhile, has said it expects to shorten the multi-year negotiations often associated with the closure of Power Purchase Agreements (PPAs) with potential developers of electricity generation plants in Nigeria.

NBET is also referred to as the bulk trader, and buys bulk electricity from generation companies for resale to distribution companies in the country within the liberalised power sector.

It said that with its experience in negotiating and closing up frontline and legacy PPAs in the country’s reformed power industry, it is able to understand and proffer solutions to recurrent issues in signing off functional PPAs with new power developers and has thus aggregated its experience into the handbook.

PPAs are instruments used to facilitate the sale and purchase of electricity. It is usually signed between a generator and a credible off-taker as the case maybe and defines the revenue cycle in such trading arrangement.

NBET explained in Abuja that the handbook, like existing PPAs it had concluded on, represents an attempt to give ready-made solutions to the challenges that investors in power generation confront while drawing up standard and acceptable PPAs.

“This is a handbook that will resonate with power project developers seeking to generate power from different energy sources,” said the Managing Director of NBET, Mr. Rumundaka Wonodi.

“It is an important contribution to the body of knowledge on electricity generation in Africa, and is of particular importance to key stakeholders in the Nigerian electricity sector,” Wonodi added.

On the need for the publication which was developed in partnership with the United States Agency for International Development (USAID), Wonodi explained: “In negotiation of PPAs, a lot of issues are on the table that need to be negotiated and positions taken on them.

“What we have done in the past is that we started with people who are developing their projects and we are negotiating the PPA with them but somewhere along the line, we find that there are new issues that need to be brought to the table and we look at them and agree on how to treat them.”

Wonodi, said the handbook was an important contribution to the body of knowledge on electricity generation in Africa.

“It ensures that stakeholders gain a clearer understanding of many issues surrounding contractual framework for power generation, including issues of risk allocation, tariff consideration, other project agreements in the electricity value chain that need to be aligned with the PPA, project finance and force majeure, among others,” he said.

Explaining the significance of the document by citing examples of delays encountered when signing PPAs in the past, Wonodi said one of the agreements signed in the wake of the reform took up to three years before it was eventually endorsed.

In a related development, about four electricity distribution companies have posted Letters of Credit (LC) to the NBET as part of expected financial guarantees required for trading in the Transitional Electricity Market (TEM).

Wonodi and Chairman of the Nigerian Electricity Regulator Commission (NERC), Dr. Sam Amadi, confirmed the development at the sideline of the PPA handbook presentation.

Amadi specifically confirmed that other distribution companies that are yet to make the LC posting, have until Friday this week as deadline to effect the posting.

He also stated that the demand for a 12-months long LC by gas suppliers as a condition to guarantee their supply of gas to generation companies have been taken up for resolution by stakeholders in the market.

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