Power
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Power Generating Companies in Nigeria cry out against crippling unconducive operating environment, warning Nigerians to prepare for total blackout if the current challenges in the sector persist
| By Anayo Ezugwu | Aug 15, 2016 @ 01:00 GMT |
THE Power Generating Companies, GENCOs, operating in Nigeria are currently struggling to survive as they are running their operations at a loss. Because of this, the GENCOs are warning Nigerians to be prepared for an imminent total blackout if nothing is done urgently in the next couple of months to ameliorate the situation.
The GENCOs are also blaming their woes on the huge debt valued at about N140 billion some government agencies and some other companies owe them; the declining value of the naira against major international currencies; insecurity and vandalism of gas and power assets in the Niger Delta; shortage in gas supply; low tariffs and absence of critical infrastructure to support power generation.
According to them, the combined effect of the factors will render the GENCOs and their investors incapable of delivering power despite their willingness and readiness to so do. This could lead to an imminent total closure of operations by GENCOs.
“The GENCOs now have very limited options to either shut down operations proactively or be compelled to do so by the current state of affairs in the power sector” even though they remain committed to deliver on their power generation commitments,” the power generating firms said in a statement it issued recently.
It stated that the lingering epileptic power supply in the country is as a result of cumulative stranded capacity from the GENCOs, which they record daily. “Several efforts have been made to mitigate these stranded capacities to the barest minimum but thus far all efforts have been in vain as the capacity tends to increase rather than decrease. Out of the 7,856.52 MW available capacity in the country, only 2,804MW can be generated as about 4,991 MW have been recorded as stranded capacity.”
A breakdown of the power generating situation in Nigeria shows that Egbin, which is the country’s largest power station, can only deliver about 201MW out of the 880MW available capacity. The remaining 679 MW is recorded as stranded capacity. Transcorp Power Limited, a subsidiary of Transnational Corporation of Nigeria Plc, owners and operator of Ughelli Power Plant in Warri, Delta State, has a stranded capacity of 249MW out of the 450 MW available capacity.
Also, Shiroro Power Station, a hydroelectric power plant located at Kaduna River in Niger State is the only company that has no stranded capacity. Out of the 450 MW available capacity, the company generates 412 MW, with the remaining attributed to generation loss. Geregu and Sapele, on the other hand, are said to have a generating capacity of 0 MW and 65 MW as well as 276MW and 55 MW stranded capacity, respectively. Also, Kainji and Jebba, both hydro power plants in Niger state, with an available capacity of 836 MW, have stranded capacity of 170 MW. The others have generating capacities of 1,190 MW and stranded capacities of 3,562 MW.
The GENCOs said they were not talking about breaking even or making profit, which is a legitimate expectation of any investor, rather they are crying out about their continued operations at a huge loss and the absence of critically required support. They said despite their commitment as seen by their substantial capital investments towards capacity enhancement and continued operations under the suffocating operating environment they have continued to be stretched.
The GENCOs claimed that they have been at the receiving end of the lapses and deficiencies in the Nigerian power sector as well as the seemingly insurmountable challenges of operating within the sector. According to them, they have been and do remain far more vulnerable than any other player in the electricity supply value chain. The GENCOs added that for whatever reason very little has been put in place to give them a legitimate chance of survival based on the realities on ground.
“While the GENCOs have been carrying the burden of ensuring that the power sector remains functional and hoping that the obvious gaps, deficiencies and threat to their existence would be addressed, they are presently cringing under the excruciating pains of carrying this burden. Given that life is literally being snuffed out of the GENCOs, they owe all stakeholders and the generality of Nigerians the duty to cry out,” they said.
The GENCOs accused the Central Bank of Nigeria, CBN, of contributing to their woes, stating that the much welcomed intervention by the CBN to bridge the gap between the receivables and actual receipts had been bogged down with bureaucracy typified by long drawn processes, which have ensured that after two years of the said intervention, not much impact has been made on the power sector.
As at today, the GENCOs claimed they have not received full disbursement of the intervention fund from CBN, and that there is absolutely no clarity as to when the remaining payment tranche will be completed. They lamented that the non-payment of the stabilisation fund as at when it was approved two years ago has eroded its value as at today.
The statement said that GENCOs have not always had access to available good quality gas despite that in the past six months, the situation took a turn for the worse. The rising cases of pipeline vandalism and insecurity around gas producing and transportation assets have further diminished the supply of gas to generation plants, thereby crippling the system.
All the issues surrounding gas infrastructure have resulted in a cumulative stranded capacity of 5,000 megawatts, MW, being recorded every day. The impact of this is better appreciated by the fact that the total power generation capacity as at today should have been close to 8,000MW as opposed to 2,800MW. The impact of this on the Nigerian economy cannot be overemphasised.
This apart, when the GENCOs acquired the power assets the exchange rate of the Dollar to Naira was $1/N157. About three years down the line, the cost of the equipment needed to carry out repairs of turbines and associated auxiliaries remain the same on the international market but has increased by about 100 percent in the last three years because of the devaluation of the Naira.
“Given the fact that majority of parts and equipment procured by the GENCOs are sourced from outside of the country, this has had significant impact on the GENCOs’ purchasing power and inevitably on their ability to upgrade and maintain their various power plants.
Also, as at the time of paying for the power assets in 2013, some of the acquisition financing were sourced by the GENCOs in dollars to the knowledge of appropriate government and regulatory agencies. The cost of repaying those facilities has significantly increased by about 100 per cent in the last three years arising from the devaluation of the Naira as well. This has resulted in additional huge losses with suffocating effects on the GENCOs. It is, however, important that there is special consideration for foreign exchange allocation to support the power sector.
On the issue of tariffs and inadequate infrastructure, the GENCOs said: “The market rules recognise three critical factors that drive tariff – exchange rate, cost of inflation and gas prices. In recent times, these three drivers have significantly risen by over 100 percent without commensurate increase in tariff.”
This has ensured that cost-reflective tariffs, which are clearly provided for in the Electricity Power Sector Reform Act, have not been achieved till date.
That is why the power firms feel the closest the market has got to this is the current tariff under the Multi-Year Tariff Order, MYTO, 2015, which, though not fully cost-reflective is a welcomed development towards enhancing the capacity of GENCOs to discharge their obligations. The GENCOs’ position is that they cannot survive, thrive or meet their power generation obligations and expectations under the present state of things. “It is important that all stakeholders should note this. It is critical that these issues be addressed immediately. This should be of utmost concern to all market participants,” the statement said.
“The GENCOs also use this opportunity to send an SOS in respect of transmission infrastructure particularly as it relates to the safety of our operations and equipment. There is a need to significantly invest in the transmission sector in order to ensure an equal level growth across the industry. As it stands now, the generating sector has already witnessed a mishap due to inadequate transmission infrastructure which has damaged generating equipment valued at billions of Naira. To this end, the GENCOs expressed optimism that the situation can only be saved if solutions are immediately implemented to address the issues highlighted above.
The cries of the GENCOs appear to have reached the ears of the Nigerian Bulk Electricity Trading Plc, NBET. The NBET has paid N186.7 billion to the GENCOs, remaining only about N156 billion. Longe Yesufu Alonge, general manager and head, power procurement and power contracts, NBET, said the company made the payment of N186, 556, 636, 647 from February 2015 to April 2016, while the outstanding payment to the GENCOs from February 2015 to April 2016 is N155, 768, 549, 056.
Alonge pointed out that the payment performance of NBET from February 2015 to April 2016 is 54.50 percent not the average of 40 percent being claimed by the GENCOs. He also said that NBET paid the sum of N21 billion from its capitalisation to reduce the debt it owes the GENCOs. He explained that the company has not paid the outstanding due to the challenges in the power sector.
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