Energy

Federal government rallies NNPC, NDPHC, others to address gencos’ gas supply challenge

Abuja- Federal government has disclosed it plan to sell Geregu, Omotosho and Calabar power plants at N434 billion in 2021.

Worried by the persistent shortage of gas supply to the thermal power plants in the country, the federal government has said there is an on-going effort involving some key government establishments in the gas and power value chain to address the gas supply challenge and increase output from the power generation companies (Gencos).

Newsmen gathered at the weekend that the government establishments and agencies involved in the collaboration and discussions being supervised by the Ministry of Power are the Nigerian National Petroleum Corporation (NNPC), Nigerian Electricity Regulatory Commission (NERC), Transmission Company of Nigeria (TCN), and the Niger Delta Power Holding Company (NDPHC) Plc.

One of the expected yields from the on-going effort would be a specific commercial intervention by the NPDHC and NNPC that would guarantee the generation companies almost 1000 megawatts worth of gas equivalent.

While the efforts to address the gas supply was in the works, the federal government also said it would take a decisive measure against the ministries, departments and agencies (MDAs) under it over their high indebtedness to the Gencos and distribution companies (Discos). This situation contributes significantly to the sector’s liquidity challenge and poor power supply to Nigerians.

In response to THISDAY’s questions at the weekend about the effort being made by the government to address the issue of gas supply constraint, Special Adviser to the President on Infrastructure and Secretary of the Power Sector Reform Working Group, Mr. Ahmed Zakari, said discussions were on-going to address the gas supply concerns. Zakari attributed the gas supply challenge to lack of firm gas agreements backed with Power Purchase Agreements (PPAs) between some of the Gencos and their gas suppliers.

THISDAY had reported penultimate week that Gencos called on NNPC to intervene in the gas supply challenge facing them, demanding that NNPC, as holder of 50 per cent stake in the Joint Venture (JV) with gas producers, should intervene by taking over their gas obligations to gas suppliers to enable them have enough gas supply to be able to generate more power.

Twenty-eight thousand megawatts (28000MW) of gas equivalent is required by the thermal power plants in the country, according to the National Control Centre, the Ogbomosho-based data house of the nation’s power sector, and only 13 per cent has been supplied to the thermal plants since privatisation last seven years, the Gencos had said.

Executive Secretary of Association of Power Generation Companies (APGC), Mrs Joy Ogaji, had made the request on behalf of her association at a recent session in Abuja, noting that one of the major challenges facing Gencos was the request by gas suppliers for Gencos to provide “securitisation” before they could supply them gas.

“My proposition is, we want NNPC, who has 50 per cent of the JVs to take up the gas obligation of the generation companies, and we will generate as much megawatts as you want, if you are able to consume or utilise it,” Ogaji had requested, explaining that such proposition would help in making gas available for all thermal Gencos to generate unrestrained and also help to reduce the electricity tariff.”

However, Zakari, in a chat with newsmen at the weekend, explained that only four Gencos in the country had firm gas agreements with PPAs with their gas suppliers, listing them as the Shell Afam VI, owned by Shell Petroleum Development Company Nigeria Limited (SPDC); Okpai Power Plant, owned by Agip, and Olorunsogu and Omotosho Power Plants, both owned by Pacific Energy.

He pointed out that the Calabar Power Plant, one of the National Independent Power Plants operated by the NDPHC, did have a firm gas agreement but with no PPA.

The presidential aide added that the existence of some form of payment assurance between Gencos and gas producers allowed gas producers to supply them gas, noting that the payment delays through subsidy had impacted the gas producers’ appetite for other plants that did not have strong payment assurances.

He said, “The Gencos with firm PPAs that support firm gas agreements are Azura, Shell Afam VI, Okpai, Pacific Olorunsogu and Omotosho. Calabar NIPP has a firm gas agreement but no PPA. The fact that these power plants have some form of payment assurance allows for gas producers to have comfort to supply.

“If you are a Genco and you have a contract with a gas producer that guarantees you your revenue, you can also give a guarantee to the gas supplier. So, it’s a back-to-back thing. The gas suppliers know that if they supply you gas for 100 million; you pay them 100 million because your money is guaranteed.

“But for these other Gencos, aside from the five that have that guarantee, one, they don’t have any capacity. So, they can’t sign any take-or-pay gas supply agreement. But also, number two, sometimes, like before, when the remittances were very low, there was a question of when the gas producer would get paid, because the market only pays a portion and then the balance is not paid.

“So, this has caused gas suppliers (to decide not supply) because simply, they don’t have gas supply agreement with the Gencos. They are on best endeavour. They are now sometimes reluctant to provide the gas.

“The historic payment delays through subsidy have impacted the gas producers’ appetite for other plants that do not have strong payment assurances. There is an active ongoing effort from NERC, Ministry of Power, NNPC and TCN to ensure gas supplies and commit to an increased power output.”

Zakari disclosed that one of the expected yields from the ongoing effort would be a specific commercial intervention by the NPDHC and NNPC that would guarantee the generation companies almost 1000 megawatts worth of gas equivalent.

He said, “This will be tied to the continued payment assurances that can be provided the Gas suppliers who are either subsidiaries of NNPC or JV partners. There is a specific commercial intervention also for NPDHC with NNPC that will guarantee them almost 1000MW worth of gas equivalent.”

He assured that there would be substantial improvement and stability of supply by the second half of the year as the government worked out the commercial issues and ensured more firm gas supply agreements were activated.

Zakari maintained that the fact that tariff reforms had improved collections and revenue by the Discos in some months by more than 60 per cent gave the government comfort that payment assurances for gas suppliers would resolve the gas supply problem sustainably.

On what the government was doing to address MDAs’ indebtedness to Gencos and Discos, Zakari said the government would take decisive measures to address the debts in the coming months, saying the government is in discussions with the Gencos, Discos and gas producers on that.

Egbin Power Plc had said last week that the total debt the Nigerian Bulk Electricity Trading Plc (NBET) owed the power generating company was presently at N388 billion.

Director of Egbin Power Plc, Mr. Kola Adesina, had disclosed the latest figure when the Senate Committee on Privatisation and Commercialisation undertook a visit to the plant in Lagos, recently. Adesina warned that the huge debt NBET owed the plant might put a question mark on the sanctity of contracts in the country and discouraged investments in the power sector. He stated that the gas constraints had cost the company 106.34MW since June 2020, adding that in 2021 alone, the company lost N13.68 billion to the challenges he highlighted earlier.

But Zakari, who declined to disclose the details of such measures to address the MDAs debts to the private power firms, said the federal government would take decisive measures to address that in the coming months.

“I can’t comment on the details now but we will be taking very decisive measures to address the debt in the coming month. We are in discussions with Discos, Gencos and gas (producers),” Zakari said.

Providing updates on the National Mass Metering Programme (NMMP), the presidential aide disclosed that plans for the commencement of the Phase 1 of the programme had reached advanced stage and the latest numbers would be announced today.

“The latest numbers will be out by Monday. We are making progress and are gearing up to commence phase 1,” he said.

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