Exorbitant tariff hampers coal power development

Coal power plant- TransAlta and Capital Power's KeepHills 3 coal-fired plant in Albania

TransAlta and Capital Power’s KeepHills 3 coal-fired plant, Albania

23 August 2016, Abuja –  The Minister of Power, Works and Housing, Mr. Babatunde Fashola has given reasons why investment decisions on the development and deployment of coal power generation into Nigeria’s energy mix has largely slowed down.

Fashola revealed that there was a significant gap in the retail tariff proposed for coal as against the current tariff approved for gas and hydro power generation in the Multi Year Tariff Order (MYTO) of the Nigerian Electricity Regulatory Commission (NERC).

He said promoters of coal power wanted their tariff set at N36 per kilowatts hour (kwh), that is, N12 above the current N24/kwh average tariff used in the MYTO. The MYTO tariff is also under contention by consumers as being quite high.

He disclosed this at a recent meeting with the Acting Executive Secretary of the Nigerian Investment Promotion Commission (NIPC), Hajiya Ladi Katagum in Abuja. The outcome of their discussion was contained in a statement from his senior aide on communication, Mr. Hakeem Bello.
Fashola said, it was at the tariff determination stage that the government felt the need to protect consumers against such high price per kwh of electricity from coal, hence, the delay in concluding any deal on coal power.

According to him, power Purchase Agreement is what really leads to power generation as it enables the investor to get credit from the bank.
“If you don’t have that agreement you won’t do a power project. And if your business plan and tariff plan is high, we won’t sign because we have an obligation to consumers; to give them power on a competitive basis, a fairly low price basis that enables the investor to recover his money and make profit but not to profiteer,” Fashola said.

He said: “It is at that PPA level that government protects consumers. That is where we protect consumers that you cannot go and throw any kind of tariff on them.”
The minister said the Nigerian Bulk Electricity Trading Plc (NBET) was not ready to approve a tariff set by coal power investors and which was well beyond the target set in the industry, hence, the deadlock in further negotiations.

“They wanted to set their tariff for coal power at 18 cents per kilowatt hour. Now if you multiply that with N200, assuming that was the exchange rate, you would be getting about N36 well over and above the contentious N24 tariff. So, who is going to bear the N12 difference?” he asked.

“That is where we begin to protect the consumer. You cannot put this in the market. Go and look at your business plan, may be you borrowed money at a very high cost. May be you have inflated or you have improperly planned your business, may be the business plan was just not well structured.
“How do you rearrange it? Some of the proposals we made to the developers, instead of doing 300MW why not start with 50MW first? Maybe the price may come down, then you can fit into the tide. That is where we get involved, when they are deadlocked,” Fashola further explained.

He said the pathway to guarantee investors good investment opportunities in the country’s electricity sector was for them to follow the country’s established guidelines and laws governing the sector.

He also said some of the investors sometimes believe that a visit to his office or letter to the president was all they needed to do business in the sector.

He however decried such practice, saying: “Business men and investors must be thorough, they must respect our laws, and they must follow our processes.”

“The education must continue; we built institutions, we encourage business men and investors to engage with those institutions because we believe that they will work and they should be allowed to do their work so that we can independently appraise them”.

“Once we crowd them up, they cannot do their work independently. That is part of the picture,” he added

 

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