Oscarline Onwuemenyi
17 January 2017, Sweetcrude, Abuja – The Managing Director of Niger Delta Power Holding Company (NDPHC), Engr. Chiedu Ugbo, has disclosed that but for the N701 billion intervention funds granted the Power Generation Companies, popularly known as Gencos, by the Federal Government early last year, the power sector would have experienced total collapse.
Ugbo, who spoke to energy correspondents in Abuja, recalled that before the release of the intervention funds, Gencos were generating power to the grid without getting commensurate revenues accrued to them from the Electricity Distribution Companies (Discos).
He noted that, “The challenges we have in the privatization of the power sector is as a result of this generation revenue, those coming to buy the power plant when they look at the cash flow, they feel that something is not right.
“Some of them will put $100 million and some of them around $500 million; you don’t make that kind of investment without knowing where the money is going to come from.
“But the government is a very responsive government and everybody acknowledged that there is problem in the sector. Generation had its faults but there were also serious market problem.
“Generation companies will generate power to the grid, maybe the maximum we have ever received from the market is about 30 per cent of our invoice and that challenge is there.”
He explained that, “The government came up with the N701 billion intervention early last year to ensure that at least, we are able to pay for our gas because with 30 per cent, it could not have been able to pay the gas supply and then maintain our power plant.
“The average cost, gas alone will take about 50 per cent of your invoice and now you are generating 30 per cent, there is no way you could pay for the gas. If you are able to pay for the gas, you won’t have money to do the operation and maintenance of the power plant.”
The NDPHC boss explained that the President Muhammadu Buhari government through the Minister of Power, Works and Housing, Mr. Babatunde Fashola, approved the N701 billion “after analyzing what the sector is supposed to pay for gas, they pay every month, the advanced cost, they check what our advance cost is in the invoice and they pay our gas suppliers.”
“That means when they do that, it cost us like 50 per cent, so we will be getting roughly around 80 per cent of our invoice paid now. So generation companies technically get 80 per cent of their invoices paid now, so that is why you see that generation companies can cope now, we can have money now to do our other projects,” he added.
According to him, “Government is doing that for two years from January 2017 to December 2018 because the government is carrying out the power sector recovery plan which they are doing with the World Bank.
“It is a performance-based loan arrangement, they are working with the World Bank, so we believed that within this period, we can come in and the market would have been set and we can flow.
“So it is an intervention, it is just a payment assurance with the CBN; so every month you supply power, we send our invoice to Nigerian Bulk Electricity Trading (NBET), then NBET receives some money from the Discos. The difference between what NBET receives from the Discos, so NBET then goes to CBN to make sure that at least we pay for gas to the gas suppliers and that has improved our revenue tremendously.”
Last year, the Federal Executive Council (FEC) approved a N701 billion payment assurance guarantee for the power sector, to be provided by the Central Bank of Nigeria (CBN) as part of measures to solve the liquidity problems in the power sector.
According to the minister for Power, Works and Housing, Mr. Babatunde Raji Fashola, who made the announcement on behalf of the FEC, “the liquidity problems that have characterised the market have affected the Nigeria Bulk Electricity Trading (NBET)’s ability to deliver on its PPA obligations to the Gencos.
“So going forward, in order to strengthen the NBET, CBN is providing a payment assurance guarantee for energy produced by any Genco, so that Gencos can pay their gas suppliers when they are paid, and so that the hydros can continue to operate.”
